IRENA 2019 IRENA HEADQUARTERS P.O. Box 236, Abu Dhabi United Arab Emirates www.irena.org ELECTRIFICATION WITH RENEWABLES ELECTRIFICATION WITH RENEWABLES Driving the transation of energy services Driving the transation of energy services PREVIEW FOR POLICY MAKERS2 ELECTRIFICATION WITH RENEWABLES Copyright IRENA 2019 Unless otherwise stated, material in this publication may be freely used, shared, copied, reproduced, printed and/or stored, provided that appropriate acknowledgement is given of IRENA as the source and copyright holder. Material in this publication that is attributed to third parties may be subject to separate terms of use and restrictions, and appropriate permissions from these third parties may need to be secured before any use of such material. ISBN 978-92-9260-108-9 Disclaimer This publication and the material herein are provided “as is”. All reasonable precautions have been taken by IRENA to verify the reliability of the material in this publication. 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ABOUT THE REPORT The forthcoming scoping study “Electrification with Renewables Driving the transation of energy services” presents recent trends and possible long-term pathways for electrification with renewables, described as “RE-electrification”. It identifies key areas for further work to better understand the implications and economic impacts of those pathways. The study is a first-of-a-kind analysis between the International Renewable Energy Agency IRENA and the world’s largest utility, the State Grid Corporation of China. Benefitting from the perspective of a major grid operator, it synthesises recent IRENA work on technology and innovation, including findings from IRENA’s forthcoming report, “Innovation landscape for a renewables-powered future Solutions to integrate variable renewables”. This preview of the study for policy makers has been prepared for the ninth session of the IRENA Assembly, of which China will be the President. The Chinese characters on the front cover signify the concept of “RE-Electrification“. For further ination or to provide feedback pstirena.org and DESP3 DRIVING THE TRANSATION OF ENERGY SERVICES ELECTRIFICATION WITH RENEWABLES DRIVING THE TRANSATION OF ENERGY SERVICES O ver the course of human history, the world has made the transition from one major of energy to another several times – from animal power and biomass to burning coal, and then to the increasing use of oil and gas. The world is already in the midst of another historic shift away from these fuels. But to meet sustainability and climate goals, the pace of change must accelerate. We need a vast expansion of renewables, a smarter and much more flexible electricity grid, and huge increases in the numbers of vehicles and other products and processes that run on electricity. This report outlines the key role that those three elements – combined together to the strategy of RE-electrification – can play along the path toward a new energy system transation. 1 . R E - E LE C TRI F I C A T I O N A VITAL PATHWAY New technological innovations – along with policy imperatives around sustainable development and the need to combat climate change – are driving an urgent energy transition in this century. This transition is toward clean electricity as a principal fuel, combined with “smart” digital technologies that make it possible to take full advantage of the growing amounts of cheap renewable power. This vision, coined as RE-electrification in this report, unlocks the potential synergies between major increases in the use of electricity and renewable power generation by coordinating their deployment and use across demand sectors – power, transport, industry and buildings. In a highly digitalised future with strong global climate policies, electrification of energy services will be pervasive. Electric or fuel cell vehicles would largely replace fossil-fuelled cars and trucks, and heat pumps and electric boilers would substitute for oil and gas furnaces in buildings and industry. Electricity from renewables could also be used to make hydrogen or synthetic gas for applications where direct electrification is difficult. Combining widespread electrification and digital technologies on one hand and renewable power on the other can become a central pillar of energy and climate policy, given their numerous benefits. RE-electrification can make power systems more flexible and resilient, while making the wider energy system more secure and less reliant on 4 ELECTRIFICATION WITH RENEWABLES fossil fuels. At the same time, it offers significant efficiency gains in primary energy use. It reduces pollution, leading to improved health. The modern automation and control systems that are an integral part of RE-electrification can also boost economic productivity and improve the quality of living conditions. Unlocking synergies between electrification and renewables In today’s traditional electricity systems, demand is viewed as variable but relatively inflexible and predictable. Small variations can be covered by operational reserves at fossil fuel or hydro generators. Most flexibility to meet variable demand comes from the supply side, where dispatchable power plants can be ramped up and down. RE-electrification creates a very different system. Overall demand for electricity will rise significantly in transport, buildings and industry, which creates new markets. Solar and wind will be key suppliers to these new markets. At the same time, the electricity they generate can vary depending on prevailing weather conditions, and having a high share of such variable renewable energy VRE in a power system poses increased operational challenges. RE-electrification strategies meet emerging operational challenges by looking beyond the generation side of the power system and tapping all available sources of flexibility. This is particularly the case for flexibility of demand over a wide range of time scales. To take just one example, the charging of electric vehicles EVs can be ramped up or down within milliseconds or shifted by several hours. To deliver this new system in a cost-effective manner, simply switching to electricity in end uses and building new renewable generation alone is not sufficient, however. RE-electrification strategies also require smart devices and other ination technologies that offer much more flexibility and control over demand and the delivery and use of renewable electricity. The integration of smart approaches in combination with digitalisation is key to reduce the risk of rising peak loads, to expand opportunities for renewable power utilisation, and to avoid the need for massive investment in building new grid infrastructure. Smart electrification with renewables thus creates a virtuous cycle, where electrification drives new uses and markets for renewables, which then accelerates the switch to electricity for end uses, creating more flexibility and thus driving further renewables growth and technological innovation. Growth and innovation also reduce costs and create additional investment and business opportunities. Challenges ahead Such a major transation is not trivial, however. Energy systems are both complex and highly integrated, making them difficult to change. On the policy side, they are highly dependent on entrenched regulations, taxes and subsidies, which require considerable political will to adjust. Even where there is political will, transing markets and supply chains – e.g. the global car industry to EVs, or home heating to heat pumps – may still take many years. People replace heating equipment and cars every 10-15 years, and in some parts of the world the building stock is being renovated at a rate of less than 1 per year. Any transition also creates winners and losers, and those who do not benefit may resist change. The distribution of cost and benefits needs to be fair and just in order to achieve broad acceptance. On the technical side, a transition to the widespread use of renewable electricity also has considerable challenges. It requires integrating large amounts of VRE into the grid, which involves matching supply and demand in the face of varying generation and peak production that may not match peak demand. It requires improved coordination between sectors of the economy, both in planning and operation. In addition, new infrastructure must be built or expanded for, inter alia, the power grid, EV charging networks and hydrogen or synthetic gas production facilities. The basic technologies needed for the transition already exist. Still, innovation remains critical. Innovation in technologies needs to go in hand- in-hand with improvements in new hardware, software and services. Together, all these innovations can accelerate the energy transition and lower its overall cost.5 DRIVING THE TRANSATION OF ENERGY SERVICES 2 . A P R O F O U N D TRANSATION IN ENERGY USE The RE-electrification transation could be profound. With dramatic cost reductions making wind and solar cheaper than fossil-fuelled electricity generation in many regions, the prospect for low- cost renewable electricity to economically replace the direct use of fossil fuels is now in sight. Global perspective According to IRENA analysis underpinning the recent Global Energy Transation A Roadmap to 2050 GET2050 report, the global share of electricity in total final use of energy could rise from 20 today to nearly 45 by 2050, with some regions relying on electricity for up to 60 of their energy use by that time IRENA, 2018a. 1 In ongoing updates to this analysis being carried out by IRENA, based on more recent data and technology trends, these figures are likely to be even higher. Meanwhile, the renewable share in power generation would climb from 26 today to 85 in 2050, with up to 60 coming from variable sources such as solar and wind. Electrification increases the demand for power, but it reduces the total energy demand, as electric heat and transport systems can be significantly more efficient at delivering energy services than those using fossil fuels. In a future with strong RE-electrification, one billion EVs could be in use worldwide in 2050, around half of the total fleet and about the same number of all types of vehicles that are on the road today. The number of heat pumps used to provide heating for buildings could jump ten-fold, to more than 250 million. Many industrial processes could switch to electric furnaces and heat pumps, while others along with some transport applications such as long-haul trucking could use hydrogen or synthetic gas produced with electric power. 1 If fuels like hydrogen produced from electricity were to be included as part of electricity’s share of total energy use, these figures would be even higher. 6 ELECTRIFICATION WITH RENEWABLES The shift to renewable energy could reduce emissions of carbon dioxide from the power sector by 64 compared to the reference case used in the IRENA GET2050 analysis, while deep electrification of the end-use sectors could reduce the emissions from buildings, transport and industry by 25, 54, and 16 respectively. As a result, as seen in Figure 1, the overall impact of RE-electrification would reduce total energy sector emissions by 44 compared to the reference case. Adding direct use of renewable energy such as solar thermal for heating or biofuel for transport and efficiency measures to RE-electrification would achieve an emissions reduction of more than 70, which is compatible with the well-below 2C goal established in the Paris Agreement. IRENA’s assessment agrees with other global scenarios compatible with the well-below 2C target, which find that buildings have the highest potential for electrification range of study outcomes between 50-80 electrification rate by 2050, followed by the industrial sector 34- 52, and then the transport sector 10-52. A Greenpeace scenario, for example, anticipates high electrification rates for both industry and the transport sector at 44 and 52, respectively Teske, Sawyer and Schafer, 2015. Another interesting example can be seen in the 85 global scenarios underpinning the Intergovernmental Panel on Climate Change special report on limiting planetary warming to 1.5C. Most of the scenarios feature electrification as an essential element of the overall strategy for deep decarbonisation, with the rate of electrification achieved by 2050 largely in the range of 35 to 55, although several reach up to 70 IPCC, 2018. Chinese perspective This report also features a groundbreaking assessment of future energy pathways for China, conducted by the State Grid Energy Research Institute SGERI, which suggests that the share of electricity in the country’s total final use of energy could grow from the current level of 21 up to 47 by 2050. In China, total final energy demand is expected to peak around 2030-2040 before declining, which is similar to the anticipated global trend. Between 2015 and 2050 in the analysis, the total amount of energy used would increase by around 30, while electricity consumption would grow by 140. There would be a structural shift away from coal towards more renewables, which would provide 66 of generation by 2050, with solar photovoltaic PV and wind generating 41. The potential for RE-electrification is particularly high in buildings, with an anticipated increase in electricity’s share of energy consumption from 29 today to 63 by 2050. The share would reach 49 and 25 for industry and the transport sector, respectively Figure 2. This RE-electrification would cut annual carbon emissions nearly in half by 2050 compared to the anticipated peak, which is reached after 2025. More than half of the reduction would come from the industrial sector, due to reduced demand and increased electrification. The power sector, despite an increase in total generation, would actually be responsible for more than one-third o