The energy transition:
What does it mean, and why does it matter?
Group President & CEO Remi Eriksen explains.
Our energy forecast has its foundations in the expertise of the thousands of DNV GL engineers working in both the oil and gas sector, and in power and energy use.
Those colleagues assess, survey, test and verify energy infrastructure being built now to supply the energy the world will need in 2050. And, for the technology not yet installed, we run more joint industry projects than any other organization in our industries, focused on new research driving better technology and improved process standards.
For us, and for many of our customers, the energy transition itself is the greatest source of risk – and opportunity.
Our own exposure, combined with our expertise and investments in future-looking activities, has enabled us to create an informed outlook on the energy transition, which I believe is worth sharing with our customers and others who influence policy and social decisions.
There are many signs that the energy industry is on the brink of profound change. Globally, policy developments, despite some notable exceptions, continue to favour renewables technology. Last year, new renewable power capacity additions were more than double the new power capacity additions from fossil fuels. In capital markets, a reallocation of funds towards cleaner technology is underway. Where is all of this going to take us? That is what we aim to answer.
There are certain trends of which we can be reasonably certain. One of these has to do with cost, which, like water, constantly seeks lower levels. An important feature of this Outlook are cost learning curves associated with key energy sources – in other words, the rate at which costs decline with each doubling of installed capacity. For renewables and battery storage, this rate is in the high teens, and that will force a profound change in the world’s energy mix in the coming decades.
But greater changes yet will emanate from advances in energy efficiency. Driven by pervasive electrification, especially of transport, and by ongoing efficiency gains in other sectors, linked in many instances to digitalization, we expect energy intensity (energy use per unit GDP) to decrease more quickly than the global economy will grow in the long run. The net result of that will be a peaking of energy demand worldwide in the 2030s. An energy market becoming smaller in less than two decades from now makes the quest for efficiency so much more strategic and urgent.
Naturally, the energy future is not likely to play out exactly in line with our forecast. The unexpected has a habit of turning up unannounced. Policy changes and technology and cost developments will unfold at uneven and sometimes unanticipated speed. That is why we have subjected our forecast to a number of sensitivity tests. While these adjustments lead to different outcomes, none is so different as to alter our main conclusion: that we have a rapid energy transition ahead of us with electrification and decarbonization of an ever-more efficient energy system. We forecast a very strong growth of solar and wind, initial growth in gas, and a decline in coal, oil and, eventually, gas, in that order.
This is the second year we have issued an Energy Transition Outlook. We have updated our model with new data and made adjustments on the basis of feedback and experience, and the result is a strengthening of the conclusions we came to last year.
In 2017, we forecast a levelling off in global final demand after 2030; this year our forecast points more towards a peaking of demand at a slightly higher level than last year, and, from 2032, a noticeable decline in demand to 2050. We have extended our work into other areas as well, and have more to say this year about effects of digitalization, resource limitations, cost of infrastructure and the role of hydrogen.
However the future we forecast is not the future humankind desires. Even with a peaking of energy demand, and fast uptake of renewables and electric vehicles, the energy transition trajectory is not fast enough for the world to meet the ambitions of the Paris Agreement. Indeed, even if all electricity was generated using renewable sources from this day forward, we would still exceed the 20C carbon budget.
A mix of solutions is therefore required, including higher uptake of cleaner technology, more carbon capture and further improvement of energy efficiency. In those respects, our collective energy future enters the hard-to-forecast realm of political will and policy.
We look forward to your feedback on our 2018 Outlook.