Despite an increase in investment forecast to increase to over $1.3 trillion a year, the world is unlikely to meet its goals for decarbonization.
The dour prediction is a part of findings in DNV’s recently published Energy Transition Outlook, an independent global supply and demand forecast. Still, a bright spot in the outlook is Denmark, which DNV Group President and CEO Remi Eriksen commended for leading by example with its “bold action” during a presentation summarizing the group’s findings on Oct. 13.
Denmark, Eriksen said, is a frontrunner in developing renewable solutions and its ambitious goal of boosting offshore wind capacity to 380 gigawatts by 2030 using new technologies like dedicated “energy islands.” However, although countries like Denmark are making significant progress on the path to net zero, he said, other countries are encountering difficulties finding a way to deliver energy that is affordable, sustainable and secure.
This “trilemma” poses a formidable challenge, and, “If ever there was a year when the energy trilemma is most pressing, it must be this year,” he warned.
“The standout feature of the energy future is without doubt electrification.”—Remi Eriksen, DNV
Resolving complex supply issues requires an increased focus on technologies that cut emissions over the long term and deliver affordable energy without compromising energy security, Eriksen said. This is an enormous challenge, and the biggest enabler in overcoming it is expanded electrification.
Making increased renewable energy a reality
Global renewable energy expenditures are forecast to double over the next 10 years to more than $1.3 trillion/year. “The standout feature of the energy future is without doubt electrification,” Eriksen noted.
DNV expects electrification to rise from 19% to 36% in the global energy mix over the next three decades. As electricity becomes more important, it also will become greener due to ramp-ups in solar and wind energy production, he said.
Despite near-term raw material cost challenges, solar and wind capacity are expected to grow by 20-fold and 10-fold respectively by 2050. By mid-century, analysts project wind power will account for 31% of global electricity generation, climbing to 19,000 TWh/year in 2050—up from 6% in 2021. At the same time, grid-connected solar power is expected to reach 38% of global electricity generation, up from 4% in 2021.
Together, wind and solar will supply nearly 70% of electricity in 2050, Eriksen said, and when hydropower and nuclear are added to the mix, the non-carbon share of energy in 2050 will be 88%. This represents, “a large shift from the 80:20 split we have today,” he said.
Unfortunately, even if the anticipated transformation of the power sector is achieved, global emissions will fall short of Paris Agreement goals.
The role of CCS
Analysts anticipate annual energy-related CO2 emissions will fall to 19 Gt in 2050, achieving a 45% reduction from the present level. Although companies continue to introduce and improve carbon capture and sequestration (CCS) technologies, uptake will be very limited in the near- to medium-term and will effectively be too late and minimal in the longer term to meet Paris Agreement targets, Eriksen reported. In fact, total carbon capture will only abate 8% of all annual energy-related emissions.
To achieve net-zero emissions by 2050, carbon removal expenditure must reach $1 trillion annually by the 2040s. Because less wealthy regions of the world will miss their net-zero targets, high-income countries will have to achieve below-net-zero performance to achieve global net-zero goals.
Even with continuing investment, hydrogen is expected to meet only 5% of global energy demand in 2050, which is about one-third of what is needed to reach net zero. This is due in great part to the fact that the high costs for blue and green hydrogen prevent production from scaling until the 2030s.
According to the forecast, hydrogen from renewables and grid-connected electrolyzers is expected to dominate, though hydrogen produced from natural gas will play an important role in hard-to-abate sectors. Ammonia, e-methanol and other fuels derived from hydrogen are expected to be used for aviation and maritime transportation.
Gas remains part of the energy mix
While there is no disputing the argument that fossil fuels must be phased out to meet carbon reduction goals, the fact is that natural gas will continue to play a major role.
According to the forecast, natural gas will overtake oil in the 2040s to become the largest energy source by 2050. North American LNG, in particular, will account for 38% of global liquefaction capacity at that time. Unfortunately, only 12% of gas will be carbon-free in 2050, DNV said.
DNV and decarbonization
There is no silver bullet for achieving global decarbonization goals, but capitalizing on insights from the Energy Transition Outlook gives DNV an edge, says Richard Barnes, DNV Region President, Energy Systems North America.
In an exclusive interview with Hart Energy, Barnes explained that this annual outlook has been foundational to identifying critical focus areas for the company for the last six years.
“For some [oil and gas] companies, the focus will be on CCS, for others, the focus will be on getting more out of what they’re producing.”—Richard Barnes, DNV
In considering the results of this year’s outlook, it is not surprising to see that the future will be characterized by “a more electrified world that is powered by non-fossil fuel sources,” he says, noting that the move to greener electrification presents challenges for companies that historically have provided fossil fuels for electricity generation.
“DNV focuses heavily on supporting customers to prepare and transition, helping them navigate around risks and identify opportunities to lower energy costs and increase margins,” he explains.
For oil and gas companies, that means looking at a more diversified business model. “For some companies, the focus will be on CCS, for others, the focus will be on getting more out of what they’re producing,” he said.
Understanding that change is inevitable is one thing. Knowing which changes require targeted support is another. As an example, Barnes says, “Three or four years ago, it became clear we had to invest ahead of battery storage.” DNV increased its staff and focused on helping industry identify challenges and develop solutions.
“We are in the same situation with green hydrogen today,” he says, noting that the organization is focusing on recruiting and developing expertise that will help companies in this space develop their green hydrogen business models, from strategic planning to securing offtakers.
“There are a whole lot of risks,” Barnes says, but they are manageable with the right partner. The key to facilitating the energy transition is understanding the diverse nature of the changes that are underway and working with customers to help them navigate unfamiliar waters.
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