World will need 48% renewables by 2035 to address climate

The International Energy Agency says the world will likely need to have around 48 per cent of total electricity generation sourced from renewable energy sources by 2035, if it is to meet the stated climate change goals of international governments.

In its World Energy Outlook 2013 report, a 760-page omnibus that is released each year by the conservative, Paris-based organisation, the IEA says that the use of renewables will need to double from the “current policies” scenario if it is to cap emissions at 450 parts per million.

As the table below shows, most of this increase comes from wind and solar, which will increase its share of total generation to 18 per cent. Critically, though, this means that the combined capacity of 2,700GW will be around 50 per cent of peak demand in 2035, and in some regions such as Europe it could be 90 per cent, and even in China and Japan wind and solar could account for more than 60 per cent of peak capacity.

Of course, this will have implications for the operations of the grid and for the structure of electricity markets, which designed around the marginal cost of generation. Because wind and solar have no fuel cost, so little or no marginal cost, this removes the price signal for other generators to stay in the market. That’s not all bad, but some capacity is required to fill in the gaps.

The IEA notes that this “merit order” effect is already putting some fossil fuel generation out of business, and warns of jeopardising the reliability of power supply.

This issue is being discussed in Germany at the moment, the country with the biggest penetration of renewables and the biggest impact on generation. It is likely to involve some form of capacity payments, but the IEA warns that care needs to be taken how these are allocated. Or they simply become another subsidy for fossil fuels. (I’ve been talking to many people in Germany about this and will be writing on this shortly).

The IEA says the total investment needed for such a renewables scenario would be more than $6 trillion. It says that by 2035, this will require an increase in renewable energy subsidies to $220 billion. To put that in some context, the amount of subsidies to the fossil fuel industry in 2012 was more than $550 billion.

The IEA report is massive, but a few other graphs caught my eye. This one below is on the power capacity changes in the “new policies” scenario, which is well short of what is required to meet climate goals. This, the IEA says, is probably the more likely, if less desirable outcome, but it still delivers a massive change in the electricity mix, with renewables dominating over other technologies.

And the cost? Well, like the subsidies, there is a lot of misinformation about the impact of renewables on bills to homes and business.

Here are the estimates of the costs of electricity to the average home, including the cost of renewable energy subsidy (in yellow at the top) – once again in the middle-of the-road New Policies scenario.

And here is an illustration of the costs, and renewable energy subsidies, to industry.