We live in an electrifying world—one that could use 60 percent more electricity by 2040 than today, according to the central scenario of the latest World Energy Outlook by the International Energy Agency (IEA).
This is not to say that electricity demand will always be growing in all regions of the world, nor that growth will be uniform in all geographies. Here's a look at where demand is expected to increase and decrease, as well as the challenges and opportunities associated with each.
Global electricity demand is set to grow much faster than overall energy consumption for two main reasons. Firstly, because of electricity's unique convenience as an energy carrier. And secondly, because of the rapid growth in the use of new technologies that cannot sensibly be powered in any other way, such as computers, smartphones, and even electric vehicles (EVs).
But not all regions are poised for demand growth in the coming decades. The United States is a case in point. Until 2007, US electricity consumption was rising year by year, according to data from the US Energy Information Administration. But then it peaked. Since 2007, the trend has been an uneven decline and then stagnation. In the European Union, demand has fallen by 3 percent over the past decade, according to the IEA.
There are good reasons why electricity consumption in the US and EU today is lower today than it was ten years ago. These are mature industrialized economies, so practically everyone who wants a fridge, dishwasher, or television already has one. What's more, as technology advances, electrical appliances and electronic equipment become increasingly efficient. Consider LED lighting, for example, which uses only a fraction of the electricity that filament bulbs or even compact fluorescents require.
So should electric utilities in the US and other developed countries worry about declining electricity demand?
According to the IEA's projections, the answer is no. Even in a scenario that assumes that governments around the world take appropriate and timely action to limit global warming to well below 2°C—the target enshrined in the 2015 Paris Agreement on climate change—power demand in developed countries will be significantly higher than it is today.
The IEA's sustainable development scenario (SDS) projects that US power demand will grow from 3,886 TWh in 2016 to 4,545 TWh by 2040—a compound average annual growth rate of 0.7 percent. In the EU, the growth rate is 0.3 percent. Japan is an exception, with a demand decline of -0.5 percent.
There are several factors at work. On the one hand, energy efficiency improvements will continue. But in most developed countries, the effects will be more than offset by increasing demand from inexorable electrification. According to the IEA: "The return of demand growth is principally due to additional demand for information and communications technology (ICT) and small appliances, industrial motors, electric vehicles (EVs), and cooling."
Outside the developed economies, the picture looks very different, with rapid electricity demand growth in all regions. In the IEA's SDS, the developing world faces compound average annual growth rates to 2040 as follows:
That's a lot of growth on the horizon globally in just a couple of decades.
A major issue to consider is that 1.1 billion people still lack access to electricity—a shocking statistic in the 21st century. Bringing electricity to regions without it by 2030 is an explicit target in the United Nations' sustainable development goals, agreed to in 2015.
Throughout the developing world, as people's income grows, so will their aspirations to own the conveniences of modern life that those in developed economies take for granted. For example, as the middle class expands and the unit cost of air conditioning falls, space cooling will be a major contributor to electricity demand growth.
While the relative importance of the industrial sector in some countries—such as China—is declining, developing countries, by definition, will continue to industrialize. The link between economic growth and electricity demand growth is weakening, but it will continue to exert its influence in these countries for the foreseeable future.
Another major contributor to demand growth in all regions of the world will be the electrification of the transport sector. EVs are poised to take a rising share of the global passenger-car fleet and eventually start to replace larger vehicles, such as buses and trucks.
Does this mean that electric utilities can rest easy, safe in the knowledge that global electricity demand will continue to grow? Well, no. The global energy economy in general, and electricity in particular, is undergoing a series of fundamental transitions best summarized by the three Ds: decarbonization, decentralization, and digitalization.
One challenge is that, while demand is forecast to rise, so is competition in generation, as consumers increasingly become producers, or "prosumers." Conventional utilities may see their slice of the generation pie getting smaller.
A related opportunity that proactive utilities are beginning to seize is the provision of services that these new prosumers require. One example is the creation of virtual power plants—made possible by increasing digitalization—which allow prosumers to participate indirectly in wholesale power markets. Utilities are also seeing opportunity in the provision of services that promote energy efficiency.
Another challenge is that variable-generation sources, such as wind and solar power, make balancing the electricity network trickier. This is creating demand for more flexibility from dispatchable power sources like gas turbines, and creating an opportunity for utilities prepared to embrace greater digitalization as a way of improving the operational flexibility of their plant.
In some cases, utilities are taking more fundamental measures, reinventing themselves by restructuring and by revisiting their business models to better align them with the changing needs of their customers.
Transformation of the electricity industry will not happen overnight. It will unfold at different rates in different geographies. But the transition is underway and utilities are left with little choice but to adapt.
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