Companies will need to invest between US$35 trillion and $43tn until 2060 to meet rising energy needs as the global power market shifts away fossil fuels, energy experts said.
Demand for electricity is expected to double by 2060, but the dynamic is on the verge of a “grand transition” forcing companies – mainly power utilities – to revamp their business models or face extinction, according to a report released by the London-based World Energy Council (WEC) on Monday.
“Historically people have talked about peak oil, but now disruptive trends are leading energy experts to consider the implications of peak demand,” said Ged Davis, executive chair of scenarios at the World Energy Council.
The idea that peak oil, or the theory that suggests the maximum amount of oil has been extracted resulting in a forever industry decline, has been debated for years. However, the notion that peak demand could be reached in just over a decade is new, mainly based on “unprecedented efficiencies created by new technologies and more stringent energy policies”.
Although the Middle East and North Africa region will remain the dominant oil producer for the next 40 years, an entirely new dynamic for the power industry will emerge.
Fossil fuels made up 81 per cent of the total energy consumed two years ago, only a 5 per cent shift over the past 45 years. More renewable energy and increasing energy efficient applications could change that ratio with fossil fuels making up as little as 50 per cent of primary energy, WEC said.
It would seem as though the need for more fossil fuels would still be prevalent as the global population continues to rise and more applications require electricity, but this will be where energy efficiency tackles rising demand.
By deploying more efficient digital technologies – such as smart grids or the digitalisation of a utility network – could cut projected peak demands by 13 to 24 per cent, according to the International Energy Agency.
The UAE, for instance, relies on natural gas for 97 per cent of its power generation. However, government-led initiatives will have clean energy from solar to nuclear and also less-polluting coal, making up just under a quarter of the power mix in five years. And smart applications, from meters to grids, are currently being installed throughout Dubai to monitor and rationalise consumption.
The emirate’s utility, Dubai Electricity and Water Authority, installed 200,000 smart meters in January with the goal to have over 1 million by 2020.
A greater effort among other countries has occurred as governments and companies looking for more measures to curb climate change, particularly after last year’s Paris Agreement was signed by 195 nations.
Yet, consultancy Accenture Strategy warns that if policies and business strategies aren’t revamped – a greater risk will appear.
“Misspending including misallocation of capital has always been a risk for energy assets, and will continue to grow due to fundamental shifts in the industry,” said Nuri Demirdoven, managing director at Accenture Strategy. “Leading companies across all scenarios will be those that adapt quickly and take two urgent steps: rethink the balance of their energy portfolio, and utilise business and digital technologies to transform how they deliver work and organise and manage performance across their businesses.”
WEC’s Mr Davis added that the underlying drivers will reshape the economics of energy. “We are entering a world where the concern is no longer just about stranded assets but also the impact of stranded resources on nations,” he said..
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