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The following provides a brief overview of selected reports in
the Global Power and Renewables service from February 2022. To
learn more about our Global Power and Renewables Service and the
reports featured in this post, click
here.
February reports recapped the past year for global power and
renewables and offered a look ahead for several regional power
markets, in addition to a long-term market outlook for global power
and renewables.
Recapping the year 2021 for global power and renewables
In 2021, the world economy rebounded amid the continued stresses
of the COVID-19 pandemic, global supply chain disruptions, several
extreme weather events, and a global energy supply crunch.
According to the IHS Markit Insight "A year of crises and
rebounds: Six graphics that show the impacts of economic
instabilities on global power markets in 2021", global power
consumption, which had slumped in 2020 owing to pandemic-induced
restrictions, rode the wave of a global economic rebound. Global
power generation increased by 6.5%, compared to 2020, with coal
being the big winner of the supply rebound. Most of the coal surge
occurred in the Asia Pacific region—driven primarily by China
and India—followed to lesser extents by North America and
Europe. Meanwhile, wholesale power prices, which had often declined
in 2020, experienced sharp jumps in 2021 due mainly to the global
energy crisis and inflation. Fuel price spikes and supply chain
disruptions, including for the supply of raw materials, fed the
surge in power costs. Power price volatility also increased in 2021
owing largely to global fuel supply disruptions, extreme weather
events such as Winter Storm Uri in Texas, and underinvestment in
infrastructure. With the surge in coal use, global power sector
carbon dioxide emissions also grew at a record rate in 2021.
Following Winter Storm Uri, the Texas public utility commission
has been focused on implementing reforms to the state's electric
industry. According to the IHS Markit Insight "ERCOT braces for
record-breaking electricity demand this week", to avoid a
repeat of the extremely high prices that occurred during the storm,
the commission lowered the systemwide offer cap—from $9,000/MWh
to $5,000/MWh—and reformed the scarcity pricing mechanism by
modifying the shape of the underlying Operating Reserve Demand
Curve to shift more of the energy market revenues to nonscarcity
periods. The cold weather and record peak electricity demand
forecast in early February 2022 was the first major test of the
electric grid since those scarcity pricing reforms were
implemented.
Meanwhile, amid the economic instabilities and challenges of
2021, clean energy investments continued. Based on the IHS Markit
Market Briefing "Europe Renewable Power Market Update: Second
half 2021", many European markets increased their renewable
ambitions in 2021 and a record volume of 42 GW of renewables is
expected to be auctioned in 2022. According to the IHS Markit
Insight "Global Power and Renewables Company Strategies:
Investors pick up M&A pace to close the year", deals for
clean generation portfolios by players such as Eneos, Koch, and BP
highlight that even the most committed conventional energy players
have found value in diversifying their portfolios. Established
global renewables leaders such as Acciona, EDPR, and RWE also made
significant moves to jumpstart growth via international expansion,
and institutional investors continue to acquire both operating and
development clean generation assets as they launch multiple new
clean technology-focused funds. The offshore wind segment is also
driving multiple new JVs and partnerships as a diverse set of
players target growth opportunities in several new markets while
hydrogen is attracting major investments as first movers seek to
establish infrastructure hubs.
Looking ahead: Short and long term
Despite the uptick in clean energy, the investment mismatch
challenges between conventional and clean energies that underpinned
the 2021 global energy crisis are expected to continue. Investment
in the supply of conventional energies is expected to continue to
decline, falling behind the level of demand for these energies, but
investment in new and renewable technologies is not yet measuring
up to the supply of low-carbon energy that the climate agenda
requires.
According to the IHS Markit Strategic Report "Europe's gas
and power crisis: Today's fears and tomorrow's plans", serious
questions for Europe in 2022 revolve around its relationship as a
major importer of gas with its suppliers, both in the LNG market
and in supply of pipeline gas from Russia, and whether the
fundamental design of Europe's electricity market is adapted to the
climate ambitions and needs of the future. According to the IHS
Markit Insight "Europe's energy market: Torn between cost and
climate", affordability will also be a major concern in Europe
in the short term as gas and wholesale power prices remain at a
premium to historic levels. At the same time, climate ambitions
will remain high and tensions between climate and practicality will
build, as evidenced by discussions on the EU taxonomy proposal.
While renewables will provide the bedrock of tomorrow's power
markets, a wide range of technologies will be required to ensure
security of supply. In 2022, decisions are expected to kick off
investments in floating offshore wind, hydrogen, carbon capture and
storage, and nuclear. While the taxonomy laid bare the divisions
within Europe on the value of nuclear, several countries'
decarbonization strategies rely on it. The United Kingdom and
France, for example, are expected to launch new nuclear projects in
2022 while Germany will shut its remaining nuclear capacity.
Nuclear has also been a primary area of debate in South Korea.
According to the IHS Markit Insight "South Korea's presidential
election: Nuclear takes center stage in the energy agenda",
the two leading candidates in South Korea's presidential election
outlined different visions for the country's energy future. While
the ruling Democratic Party's candidate aimed to bolster current
climate ambitions and maintain the current policy notion of phasing
out nuclear, the opposition People Power Party's candidate intends
to pull out all the stops to revive the country's nuclear
industry.[1] In Japan, the 6th Strategic Energy Plan,
which targets increasing the share of nuclear to 20-22% of the
power mix by 2030, is due to be implemented in April 2022.
According to the IHS Markit Market Briefing "Japan Nuclear
Status Tracker", after a slowdown in 2020-22, nuclear restarts
are expected to boom again from 2023 onward.
Meanwhile in Latin America, according to the IHS Markit Insight
"The five big questions facing Latin American gas and power
markets in 2022", power markets are likely to evolve
differently across the region depending on economic
recovery—enabled by higher vaccination rates in many Latin
American countries—and key policy changes resulting from
ongoing governments' energy policies and elections. For example,
Mexico—a country that has once been a top market for
renewables—is currently discussing a new constitutional reform
that might dissolve the bulk market mechanisms brought by the
energy reform of 2013. On the contrary, Chile continues to push its
green agenda, and despite its recent change in presidency, initial
signposts point to a continuation of its clean power sector policy.
At the same time, the ongoing tight gas market situation around the
world could severely affect countries in the region as natural gas
becomes the fuel of choice to balance power markets that are
dependent on hydro generation and/or an increasing share of
nonhydro renewables.
In Sub-Saharan Africa, according to the IHS Markit Strategic
Report "Africa Energy and Economy Review and Outlook
(2021-2022): A time of transition to an uncertain
destination", power demand is also expected to continue to
grow in 2022 but at a slower pace than in 2021, while still
remaining on average less than 500 kWh per capita—among the
lowest levels worldwide. Diversification of energy sources away
from oil and coal to gas and renewables will also gain momentum, in
line with energy transition objectives, although at different
speeds across the region depending on each country's power supply
gap versus growing power demand, financing availability, and the
need to provide reliable power. At the same time, chronic
bottlenecks in the global supply chain are expected to continue to
impact renewable projects in the near term, challenging initiatives
to increase energy supply and access, and to diversify the energy
supply mix.
In the longer term, according to the IHS Markit Scheduled Update
"Global Power and Renewable Market Outlook, February
2022", nonhydro renewables are projected to account for more
than 95% of new power generation capacity globally, becoming the
dominant source of power and representing 50% of power generation
by 2050 globally. Coal generation will be in net decline
everywhere, except in India, while gas is expected to continue to
play an important role.[2] Solar and wind will represent almost all
new renewable additions with offshore wind growing fast. Energy
storage, which represents a critical source of flexibility, is also
expected to grow strongly while increasing demand for green
hydrogen becomes a major driver for further renewable additions.
Investments in renewables, storage, and green hydrogen will
continue to increase, with growth driven by Asia and Europe, at an
estimated annual pace of $440 billion.
Rama Zakaria is associate director of Global Power and
Renewables at IHS Markit.
Posted on 23 March 2022
--------------------------------------
[1]
South Korea's presidential election was held on 9 March 2022, with
the opposition People Power Party's candidate Yoon Suk-yeol winning
the election.
[2]
Based on pre-Ukraine invasion planning case projections.
This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.
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