DNV GL: world energy demand will peak in 2035 prompting a reshaping of energy investment due to rapid electrification and inherent efficiency
Global spending on energy, as proportion of economic output, is set to slow sharply because the world’s energy demand will decline from 2035 onwards, according to DNV GL’s Energy Transition Outlook. The historically significant change in energy needs is largely down to rapid electrification and its inherent efficiency.
The decarbonization of the energy mix will be reflected in investment trends with money spent on renewables set to triple by 2050, according to the report. Conversely, fossil fuel spending will drop by around a third. Overall, the rate of energy expenditure will slow to such a degree that by mid-century, as a percentage of GDP, the world will be spending 44% less than today.
However, the report cautions, the rapid transition will not be fast enough to meet a sub-2 ⁰C climate goal. A strong combination of several measures is the only way for the world to meet the ambitions of the Paris Agreement.
The attention of boardrooms and cabinets should be fixed on the dramatic energy transition that is unfolding. As money and policy increasingly favor gas and renewables, the rapidly electrifying energy system will deliver efficiency gains that outpace GDP and population growth. This will result in a world needing less energy within half a generation from now.
The transition is undeniable. Last year, more gigawatts of renewable energy were added than those from fossil fuels and this is reflected in where lenders are putting their money.—Remi Eriksen, Group President and CEO of DNV GL
Fossil fuels will play an important if reduced role in the energy future with its share of the energy mix set to drop from around 80% today to 50% by the middle of the century, with the other half provided by renewables.
Natural gas will become the single largest source in 2026 and it will meet 25% of the world’s energy needs by 2050. Oil will peak in 2023 and coal has already peaked. Solar PV (16% of world energy supply) and wind (12%) will grow to become the most significant players among the renewable sources with both set to meet the majority of new electricity demand, according to the report.
The electrification trend is already enveloping the automotive industry. By 2027 half of new cars sold in Europe will be battery-powered and the same will be true five years later in China, India and North America. This will contribute to an overall reduction in the transport sector’s share of global energy demand from 27% to 20% by 2050.
The reduced requirement for energy will be reflected in investment with overall expenditure set to drop to 3.1% of global GDP from 5.5% today. As fossil fuels will have a smaller slice of a smaller pie, spending will fall by around a third to US$2.1 trillion. This will be offset by the tripling of both renewables (US$2.4 trillion) and grid expenditure (US$1.5 trillion).
The nature of the spending will also alter with wind and solar projects typically requiring greater upfront CAPEX and then less operating expenditure, the opposite to oil and gas.
DNV GL serves both the renewables and oil & gas industries; the Energy Transition Outlook is an impartial voice on the energy future. In its second year, the model has been refined further and has produced a more aggressive electrification forecast (45% of energy demand by carrier versus 40%) while the total energy demand is slightly higher (6%).