As the world’s energy production continues to trend toward decentralization, decarbonization, and digitization, it is no longer a question of if global renewables penetration will exceed 40% within the next 15 years but how fast and where these high penetrations will occur.
Understanding such factors will be critical for power industry stakeholders as questions emerge on what would need to change about the way we add power generation capacity and what limits we will bump into without innovation. In this blog post, we present Lux's regional generation capacity forecasts, segmented by fossil fuels, dispatchable renewables, and non-dispatchable renewables, for four key regions.
We formed the backbone of our generation capacity growth trajectories on data sets provided by the World Bank, specifically historical generation capacity, population, population growth, per capita energy use, GDP, GDP growth, and economic energy intensity. We then further augmented these trajectories by accounting for renewables goals from nine specific regions and countries: North America, Europe, China, India, Australia, Japan, South Kora, ASEAN, South America, and Africa. Lastly, we segmented renewable generation by dispatchable (hydropower and nuclear) and non-dispatchable (wind and solar photovoltaics), based on the assumption that the latter will experience cost declines, while the former will not.
There are two key drivers for renewables penetration in each region and country: which electricity source is the cheapest and whether electricity demand is growing. These dynamics impact our forecasts and below we call out four key regions and countries from our analysis.
- North America: Natural gas capacity remains a large fraction due to its abundance and low cost. Coal capacity declines, with demand being replaced by natural gas, wind, and solar. However, with low electricity demand growth, a relatively low non-dispatchable renewables penetration of 35% is forecasted in 2035. This will vary widely, with states such as California, Texas, and New York likely above that percentage and other states trailing far behind.
- Europe: High electricity prices and stronger grid interconnections means that more renewable energy can be integrated with better economics than coal or natural gas. Electricity demand is growing faster than North America and much of that new demand will be met with lower-cost wind and solar, which pushes renewables penetration to 52% in 2035.
- China: Low coal costs and growing electricity demand will keep coal capacity in the generation mix much longer than its Western counterparts. Despite wind and solar being the largest capacity additions to the generation mix, though not by much, renewables penetration reaches just shy of 35% in 2035.
- India: Conversely, India has relatively expensive coal costs as well as some of the lowest solar costs in the world. These two factors combined with rapid growth in electricity demand leads to wind and solar as the main sources of new generation capacity as the country is projected to reach more than 57% renewables in 2035.
With rising renewables penetration also comes for the need for grid-scale energy storage. Li-ion battery grid storage deployments will go a long way toward easing the power industry’s transition to these high intermittent renewables penetrations. In areas with more than 40% penetration of non-dispatchable renewables, new energy storage technologies and business will also become more attractive. While Li-ion battery systems are the low hanging fruit today, we expect commercial activity for flow batteries, long-duration storage, and application stacking to pick up leading up to 2035. Battery incumbents, energy service providers, and startups pursuing these net-generation grid storage solutions are encouraged to focus their business on regions and countries with higher forecasted renewables penetrations, such as Europe, India, Australia, and select states in the U.S..
- Download the Executive Summary: Global Energy Storage Market 2019