Country profile The Republic of Paraguay is located in central South America and bordered by Argentina, Bolivia and Brazil. The country has a landlocked area of 406 752 square kilometres, divided into two natural regions by the Paraguay River. The eastern zone contains 90% of the population, while the western zone, known as the Paraguayan Chaco, represents 60% of the territorial surface. The eastern region is dominated by the Amambay, Mbaracayú and Caaguazú mountain ranges. The Paraguay River is the main fluvial system, navigable by deep-sea vessels from Paraná to Asunción and by medium-sized fleets from Asunción to Corumbá (Brazil). The next largest river is the Paraná River, which extends for 679 kilometres bordering the east-south limits of Paraguay. Paraguay’s population, estimated at 7.3 million, is growing at an average annual rate of 1.5%, exceeding the 1% average annual growth rate for Latin America and the Caribbean overall (Figure 1). Of this population, 62.5% is located in urban areas and 37.5% in rural areas (DGEEC, 2015). The most populated cities are Asunción and Ciudad del Este in Alto Paraná. In 2018, the Human Development Index value for Paraguay was 0.72, below the regional average of 0.76 for Latin America and the Caribbean, ranking Paraguay in 98th place out of 198 countries worldwide.
By the end of 2019, 99.95% of the population had access to electricity, and 69% used modern energy sources – such as liquefied petroleum gas (LPG) or electricity – for cooking purposes (ANDE, 2019a). Between 2015 and 2016, the country’s energy intensity (energy consumption per unit of gross domestic product, (GDP) decreased by 1.85%, from 10 267 kilojoules per USD to 10 080 kilojoules per USD (DGEEC, 2015).
Energy sector overview Energy supply The energy supply in Paraguay is dominated mainly by hydrologic and biomass resources, which represented 41.0% and 36.8%, respectively, of energy use in 2019. Between 2010 and 2019, energy supply grew at an average annual rate of 1.3%, to reach a total of 457.4 petajoules (PJ) in 2019 (Figure 3). There are no recorded imports of crude oil since the closing of the operations of the Petróleos Paraguayos refinery (PETROPAR) in 2005. Paraguay depends heavily on imports of oil derivatives, mostly petrol and diesel, which account for nearly 90% of liquid fuel imports. The import of oil derivatives has increased rapidly in recent years, growing 5.1% annually on average during the period 2010-2019, driven primarily by the increase in the country’s vehicle fleet.
Paraguay is home to around 14 bioethanol plants, which are distributed among 12 alcohol producers authorised by the Ministry of Industry and Trade (MIC). In 2018, the national bioethanol production capacity reached 550 million litres. The current production, 55% from corn and 45% from sugar cane, doubled the cultivated area of these raw materials during the period 2008-2018 (FAO, 2018). Table 2 shows the six companies with the highest installed bioethanol production capacity, led by Paraguayan Alcohols Industry S.A. (INPASA) and PETROPAR. Biodiesel production capacity has grown steadily, achieving total production of 376 million litres in 2019, up from 138 million litres in 2010 (SIEN, 2019). By 2014, around nine companies had a combined annual capacity of 45 million litres (MIC, 2018). Since 2019, ECB Paraguay S.A. (part of the ECB Group) has been planning to build a second-generation plant with an installed capacity of 3 million litres per day for the production of biodiesel and biokerosene, equivalent to one-third of the conventional diesel currently consumed in the country (MIC, 2019).
Energy consumption Between 2010 and 2019, total final energy consumption (TFEC) increased by 48.8%, from 180.4 PJ to 268.5 PJ. The transport sector accounted for the largest share, followed by the residential, commercial, industrial and public sectors (VMME, 2012, 2020a), as shown in Figure 4. Between 2010 and 2019, the consumption of biomass increased in the residential and commercial sectors by 20.7% and in the industrial sector by 23.7%. In 2019, biomass supplied 41.3% of the TFEC, mainly from firewood (69.8%) and charcoal (8.1%). Firewood was mainly used for cooking purposes, which has traditionally been based on the use of inefficient stoves. In the same period, the use of electricity increased by 91%, and transport increased its consumption of derivatives (diesel and petrol) by 68.6%. The consumption of LPG at the residential level increased by 7.2% and displaced part of the consumption of firewood for cooking (DGEEC, 2016).
Power sector The Itaipú and Yacyretá hydropower plants represent the largest installed generation capacity in the country and are integrated with the electricity systems of Brazil and Argentina. The Acaray hydropower plant is the third largest, followed by small thermal plants using diesel, bagasse and biogas that are mostly managed by the National Electricity Administration (ANDE). Table 4 shows the installed generation capacity by type in 2020; the capacity shares have remained similar for the past decade, with small variations in the installed capacity from bioenergy.
Several factors have contributed to the increase in domestic electricity consumption, including GDP growth, which averaged 3.87% during the 2001-2018 period (World Bank, 2020b); the low cost of electricity; and growing energy intensity in the industrial sector (where average consumption per user grew from 7.7 kilowatt hours (kWh) per month to 90 kWh per month) and in the residential sector (where average consumption per user grew from 231 kWh per month to 363 kWh per month) (ANDE, 2018a).
Transmission and distribution network In 2019, the National Interconnected System (SIN) comprised 6 682 kilometres of transmission networks. Of the total, 10.6% corresponded to 500 kilovolt (kV) lines, 69.1% to 220 kV networks, and the remaining 20.3% to 66 kV lines. The installed power in transformers reached 15 585 megawatts (MW) distributed in 94 sub-stations. The electricity distribution networks comprised 68 331 kilometres of medium-voltage lines and 85 913 transformers with an installed power of 6 561 MW (see Figure 10) (ANDE, 2019a).
The operational capacity of the transmission system needs to be improved to ensure the quality of the electricity supply. In hours of high demand for the Metropolitan System, the 500 kV transmission lines and the 500 kV to 220 kV transformation sub-station operate at near-maximum capacity, leading to increasing technical losses and risks due to unscheduled interruptions (IDB, 2020b). Paraguay is among the countries with the highest electricity losses in Latin America. In 2019, the electricity losses represented 25.8% of the internal supply of electricity, equivalent to 4 470 GWh; of this, 5.2% was transmission losses and 20.6% was distribution losses (ANDE, 2019a).
Energy and climate action In 2015, Paraguay’s carbon dioxide emissions totalled 45 841 gigagrams (Gg), around 1% of global emissions. This was up from 40 023 Gg in 2000, representing an average annual increase of 0.97% during the period. On average, the energy sector accounted for 10.3% of national CO2 emissions in the period 2000-2015 (UNFCCC, 2018). Between 2010 and 2018, CO2 emissions from the energy sector (fossil fuels) and biofuels increased from 8 753 Gg to 13 996 Gg, a rise of 59.9%. The consumption of fossil fuels averaged 52% of the total, and biomass5 averaged 41% (as a result of the degradation of native forests). Figure 13 groups the emissions from the energy sector and biofuels.
Renewable Energy Development
Renewable energy development in Paraguay focuses on the use of hydrologic resources and biomass. Other renewable energy sources were not included in the country’s energy balance as of 2019, although small-scale wind and solar projects do exist in isolated areas. Energy crops7 such as corn, sugar cane and soybeans have maintained sustained growth driven by the demand for liquid biofuels (bioethanol and biodiesel). The country seeks to take advantage of the potential to produce biogas and green hydrogen by implementing the actions defined in the Energy Policy 2016-2040 and the Sustainable Energy Agenda 2019-2023.
Challenges and Recommendations
This section presents the main recommendations for accelerating the deployment of renewable energy in Paraguay, based on the challenges identified during the Renewable Readiness Assessment (RRA) process. The consultative process included a review of the literature, insights from interviews, and outcomes from focus groups and multi-stakeholder roundtable discussions held during workshops, along with subsequent exchanges with selected stakeholders. This section groups the recommendations in six areas and identifies the main challenges for each. Within the six groupings are a total of 15 short- to mid-term actions for an accelerated deployment of renewable energy in Paraguay.
INTRODUCTION A large number of stakeholders were interviewed and/or responded to questionnaires regarding the requirements for developing local capacity around solar water heaters. These included project developers, component manufacturers, service providers, energy authorities and representatives of national and global associations dedicated to solar water heaters or renewable energy in general. The study also draws on the public reports of relevant companies, including annual reports, technical specifications and equipment handbooks, and public price lists. Heating and cooling consume the most energy of all end uses, accounting for nearly half of global final energy consumption. Most of this is generated from fossil fuels. In 2019, fossil fuels and non-renewable electricity met more than 77% of heating and cooling demand (IRENA, IEA, REN21, 2020). The energy consumed for heating and cooling is thus a significant contributor to air pollution and carbon dioxide emissions: heating and cooling accounted for almost 40% of energy-related emissions in 2018, a share that has remained almost unchanged for the past decade, owing to the continued dominance of fossil fuels (IRENA, IEA, REN21, 2020). Half of the energy consumed for heating and cooling is consumed in industrial processes, while another 46% is used in residential and commercial buildings – for space and water heating and, to a lesser extent, for cooking. The remainder is used in agriculture for greenhouse heating and for drying, soil heating and aquaculture (IRENA, IEA, REN21, 2020). Given that heating water accounts for about 18% of household energy use (US DOE, n.d.), on average, and that demand for hot water is growing with household incomes, the decarbonisation of heating and cooling in general, and water heating in particular is thus a key element of the on-going energy transition needed to limit the rise in global temperatures to well below 1.5°C (IRENA, IEA and REN21, 2018, 2020).
China had the largest number of newly installed solar water heaters (glazed and unglazed), at almost 25 GWth in 2018, followed by Turkey and India with around 1.3 GWth. Brazil installed 875 megawatts thermal (MWth), and the United States, 623 MWth. Figure 2.2 shows the installed capacity by 2018 of the ten countries that installed the most solar water heaters in 2018 (MWth). Since China imbalances any cross-country comparison by its sheer size, looking at recent additions per capita and cumulative additions per capita completes the picture. For example, looking at newly installed solar water heaters per 1 000 inhabitants in 2018 reveals that several small countries and territories with smaller populations made important strides in deploying the technology (Figure 2.3). Resource potential cannot be the main driver of deployment, given that Denmark, a country with poor solar resources, ranks among the top ten.
Policy instruments driving the deployment of solar water heaters
Although often cost competitive, solar water heater deployment requires policy support. The barriers are manifold. For instance, low levels of awareness by households about modern hot water generating systems based on renewables hinders deployment. Homeowners tend to choose a known option. As a result, the deployment of solar water heaters has been largely supported by a mix of policies in many countries. These include direct policies such as targets, programmes, obligations and mandates, and financial incentives such as subsidies and low-interest loans to lighten the burden of the high initial cost (relative to cheaper alternatives such as gas boilers). In addition, enabling policies such as technical standards and certificates and training and retraining measures help create an enabling environment for the development of a solar water heater sector. Broader enabling policies are discussed in Policies in a Time of Transition: Heating and Cooling (IRENA, IEA and REN21, 2020).
Targets provide a clear indication of the intended deployment and timeline envisioned by the government. They inform industries and consumers alike, and often become key drivers of policy, investment and development. Targets for solar water heaters are set in terms of the number of systems, collector surface or thermal capacity. Ambitious solar thermal targets and low system prices have driven the impressive growth of solar water heaters in China. The country’s 12th Five-Year Plan (2011-2015) included a target of installing 400 million m² of cumulative solar water collector surface. It was exceeded by more than 10.5%. By 2020, the end of the 13th Five-Year Plan period, this number was expected to have doubled to 800 million m² (NDRC, 2016).
SOCIO-ECONOMIC VALUE CREATION FROM THE DEPLOYMENT OF SOLAR WATER HEATERS
As countries move towards their renewable energy targets and ramp up efforts to reduce carbon emissions, heating water using renewable energysources should be considered as a part of this effort. Estimates for the near future see the global market for solar water heaters cross USD 4 billion by 2024 (Global Market Insights, 2017). Next to the environmental benefits, this presents ample opportunities for socio-economic value creation and employment. The deployment of renewable energy leads to jobs in different sectors, of different qualifications and duration. This study focuses on direct employment, which refers to employment that is generated directly by core activities without considering the intermediate inputs necessary to manufacture, install and operate solar water heaters. Other types of employment are indirect employment, including in upstream industries that supply and support core activities, or even more comprehensive induced employment, encompassing jobs resulting from additional income being spent on goods and services in the broader economy (such as food, clothing, transportation and entertainment).
Worldwide employment (direct and indirect) in the solar heating and cooling sector was estimated at around 817 620 jobs in 2019. The largest number of jobs were in China, Brazil, Turkey and India. China accounted for about 83% of the global employment in the sector, with 670 000 jobs, followed by Brazil with 43 900 jobs, Turkey with 21 600 and India with 20 690 jobs (IRENA, 2020b) (Figure 3.1).
Sales and distribution In the sales and distribution phase, distributors and wholesalers transport solar water heaters from manufacturers to households, creating many opportunities for value creation. In this analysis, the term wholesale refers to the purchase of solar water heaters from the manufacturers (including imports for imported equipment) and distribution involves the sale of systems to final customers using multiple channels. Distribution also encompasses the transport of solar water heaters from the warehouse to the installation site, including logistical arrangements. Components can be conveyed in a typical pickup truck, with no special handling required apart from proper packaging to avoid breakage or scratching. Selling and distributing solar water heating systems for 10 000 single-family households requires 44 160 persondays (around 10% of the total requirements along the value chain) (Table 4.4). The wholesale activity requires 30% of the total person-days, while the retail distribution of systems is the most labour-intensive activity, involving an estimated 30 960 person-days (70% of the total).
CONCLUSIONS Renewable sources of energy are key for the energy transition. It is widely acknowledged that the expansion of renewable energy not only supports climate goals and other environmental protection objectives, but also increases energy security, decreases dependence on fossil fuels and enables energy access. In addition, the deployment of systems that harness renewable energy supports economic growth, creates employment opportunities and enhances human welfare. Domestic value creation can be maximised by leveraging and enhancing capabilities in existing industries along the value chain, or developing them. While efforts to deploy renewable-based systems have generally focused on power generation, there is a growing global consensus on the need to shift attention to end-use sectors. The transport and the heating and cooling sectors account for more than 30% and almost 50% of global energy consumption, respectively. Therefore, utilising renewables in these sectors is key to accelerating the pace of the global energy transition. For heating and cooling, renewables are becoming increasingly cost-competitive relative to the alternatives, in particular for heating water. In contexts characterised by an insufficient energy supply and high reliance on fossil fuels, or where inefficient electric boilers are common and peak power loads need to be dropped, solar water heaters represent a promising solution. Their deployment is labour intensive, presenting opportunities for local job creation, and for the establishment of businesses focused on the sales, distribution and installation of systems. These opportunities for value creation are amplified by the fact that the requisite activities can build on existing capacity.
This study seeks to map areas in Burkina Faso that are suitable for deploying utilityscale solar photovoltaic (PV) and wind power projects. It aims to i) provide insights into the country’s potential to adopt solar PV and wind power; ii) inform national infrastructure planning across the electricity supply value chain, spanning generation, transmission and distribution; and iii) provide critical input for high-level policy models that aim to ensure universal electricity supply and support the long-term abatement of climate change. The study combines high-quality resource data with ancillary factors, such as local population density, protected areas, topography, land use, electrical transmission lines and road network proximity, using a suitability assessment approach. This approach – developed by the International Renewable Energy Agency (IRENA) in 2013 and now updated based on accumulated global experience and heightened data collection capacity – has enabled the identification of areas in the country worthy of further investigation in the context of intensified renewable energy development.
This suitability assessment was carried out at the request of the Government of Burkina Faso to map potential areas for utility-scale solar photovoltaic (PV) and wind projects. Currently, less than 25% of the population has access to electricity and the majority of those with access live in urban areas. In cities, the electricity access rate averages 65%, dropping to 3% in rural areas. The country aims to reach 95% electricity access, with 50% in rural areas and universal access to clean cooking solutions in urban areas, with 65% in rural areas by 2030, up from 9% in 2020. The utilisation of Burkina Faso’s renewable resource potential would enable the country to reduce its heavy reliance on thermal generation and energy imports. The country could also move to attain the 50% renewable energy generation targets stipulated in the 2014 Energy Sector Policy and the 2017 law on the regulation of the energy sector.
THE SUITABILITY ASSESSMENT
The suitability assessment is predominantly a GISbased multi criteria decision making analysis that enables the objective mapping of the renewable energy potential in a country or a region. The resource data – such as solar irradiance or wind speed at a specific height – is the most important criterion in evaluating the potential of an area for solar and wind energy project development. Such evaluation requires a representative mapping of the renewable resources. The solar irradiance component affecting photovoltaic (PV) output is global horizontal irradiance (GHI). This component is commonly calculated using either physical-based or statistical-based approaches that also require satellite or ground measurements. Datasets, such as the World Bank’s Global Solar Atlas and Transvalor’s SODA solar maps, cover more than 20 years of hourly historical data at 1 km grid cell resolution; they allow the calculation of a representative long-term average annual global horizontal irradiation.
DATA SCOPE AND QUALITY
The data considered to perform the suitability assessment for solar PV and wind projects were sourced for the defined criteria. These criteria include solar and wind resource maps, topography features (elevation and slope), proximity to transmission line and road networks, and proximity to population centres and environmentally sensitive areas.
Solar resource data
The average annual global horizontal irradiation (GHI) data employed in this study were sourced from the World Bank’s Global Solar Atlas, developed by Solargis (ESMAP, 2019b), (Figure 2). The data are calculated at a grid cell resolution of 1 km using long-term satellite-based solar irradiance covering a time period from 1994 to 2015.
Transmission line network
The transmission line network used in this analysis was provided by the National Observatory of Territorial Economy office in Burkina Faso as shown in Figure 5.
Figures 9 and 10 display the land suitability map for solar PV and wind project development in Burkina Faso generated using the suitability assessment approach discussed The results obtained indicate that 27.4% and 0.5% of the total country land area is suitable for solar PV and wind project development, respectively (i.e. suitability index exceeding 60%). These areas are largely located along the transmission network.
The findings of this study indicate that there is significant potential for utility-scale solar PV and wind power development in Burkina Faso. The maximum development potential across the country is estimated at approximately 95.9 GW and 1.96 GW for solar PV and wind projects, respectively, considering land-use footprints of 50 MW/km2 for solar PV and 5 MW/km2 for wind, with a land utilisation factor of 1%. These findings are intended to prompt more indepth investigation to establish specific sites for detailed evaluation using high temporal and spatial resolution resource data. Yet the limitations of this study must be noted – including the sensitivity of the land suitability maps to the assumption made to set the thresholds and the underlying quality of criteria datasets. Notably, non-technical issues, such as land ownership, can also influence the selection of land for further prospecting.
The renewable energy sector employed 12 million people, directly and indirectly, in 2020.1 The number has continued to grow worldwide over the past decade. The solar photovoltaic (PV), bioenergy, hydropower and wind power industries have been the largest employers. Figure 1 shows the evolution of IRENA’s renewable energy employment estimates since 2012.
These employment trends are shaped by a multitude of factors (see Figure 2). Key among them is the rate at which renewable energy equipment is manufactured, installed and put to use (largely a function of costs and overall investments). Costs, especially of solar and wind technologies, continue to decline. With relatively steady annual investments, lower costs have translated into wider deployment. An increase in investments would boost future job creation, even allowing for growing labour productivity. Policy guidance and support remain indispensable for establishing overall renewable energy roadmaps, driving ambition, and encouraging the adoption of transparent and consistent rules for feed-in tari-s, auctions, tax incentives, subsidies, permitting procedures and other regulations.
The geographic footprint of renewable energy employment – the physical location of the jobs – depends on the dynamism of national and regional installation markets; on technological leadership, industrial policy and domestic content requirements; and on the resulting depth and strength of the supply chain in individual countries. As the industry changes and matures, policy instruments must be fine-tuned.
The complex impact of COVID-19 The COVID-19 pandemic loomed over the global economy for most of 2020 and 2021, a-ecting both the volume and structure of energy demand. Employment, including in the energy sector, has been deeply a-ected by repeated lockdowns and other restrictions which put pressure on supply chains and constrained economic activity. Across the global economy, millions of jobs were lost and many others put at risk. According to the International Labour Organization (ILO, 2021), 8.8% of global working hours were lost in 2020, equivalent to 255 million full-time jobs. Available information indicates that women were more aected than men, given that they tend to work in sectors more vulnerable to economic shocks. This comes on top of a long-standing imbalance in the energy sector, including renewables, i.e. a marked gender inequality. A two-page feature on this topic begins on page 18. In renewable energy as elsewhere in the economy, the ability of companies and industries to cope with the pandemic and comply with social-distancing requirements in the workplace varies enormously. Companies and government agencies face not only the direct health impacts of the virus, such as sick and quarantined workers or temporary factory shutdowns, but also the economic repercussions of border closures and interruptions in deliveries of raw materials and components.
In many countries a cycle was established in which delays were followed by surges of activity. This reflected the newfound reality in which countries’ varying degrees of success in reducing COVID-19 infections alternated with a resurgence of cases. But some of the late surge was also driven by developers rushing projects to meet permitting deadlines (some of which were extended in response to pandemic delays) or reacting to impending changes in policies, such as expiring tax credits, phaseouts of subsidies or cuts in feed-in tari-s. In a sense, the pandemic further amplified the ups and downs seen in the sector in ordinary years. Due to the mobility constraints inherent in the COVID-19 policy response, transport energy demand was far more a-ected than electricity use. This played to renewables’ advantage, in that the bulk of renewable capacity has been installed in the power sector, whereas renewables’ role in transport fuels remains quite small for the time being. An added wild card were the extreme swings in the price of oil during parts of the year, triggered by oversupply and a price war among some major producers. Cheaper petroleum fuels had the e-ect of diminishing demand for biofuels.
Renewable energy employment by technology This section presents estimates for employment in solar PV, liquid biofuels, wind and hydropower. Less information is available for other technologies such as solid biomass and biogas, solar heating and cooling, concentrated solar power (CSP), geothermal energy and ground-based heat pumps, waste-to-energy, and ocean or wave energy. Most of these other technologies also employ fewer people (see Figure 4). Observations on o–grid and mini-grid developments are also o-ered here, as well as glimpses at other energy transition technologies (battery storage and green hydrogen).
EMPLOYMENT FOR A CLIMATESAFE FUTURE: OUTLOOK FOR THE ENERGY TRANSITION
Accelerating the energy transition in line with global climate and development objectives will continue to have significant implications for employment in the energy sector as well as the wider economy. The energy transition can create many new job opportunities along the value chain. Reaping the benefits and overcoming challenges in this regard requires a deep understanding of the interplay of the energy transition with economies and societies. For this reason, IRENA has put forward a comprehensive approach that links the world’s energy systems and economies within one consistent quantitative framework, which allows socio-economic indicators to be compared under dierent scenarios. All other things held equal, this leads to an analysis of the impacts of the energy transition expressed in the indicators of employment, gross domestic product and welfare.
HYDROPOWER: Jobs in hydropower are expected to amount to 3.7 million37 in 2050 under the 1.5°C Scenario. For one, this is because significant hydro potential has already been exploited, implying smaller incremental capacity additions, and thus slower growth than newer technologies. In addition, new hydro installations increasingly have to be aligned with eorts to protect natural habitats and to minimise social impacts and conflicts surrounding the use of water resources among di-erent communities and countries that share watersheds. Some regions may see more hydro development, and hence job creation, than others; for instance, hydro power is growing fast in Africa owing to some large-scale projects and, to date, limited environmental regulation and local community protection laws that make further development of large-scale hydro resources possible (IRENA, 2021e forthcoming).
SKILLS NEEDS FOR THE ENERGY TRANSITION
The energy transition o-ers significant employment opportunities across di-erent countries and market segments. Education, skills, training and retraining will support realignment. The trends in the educational requirements of the energy sector call for better co-ordination between the sector and educational institutions. An integrated approach to labour and educational policy and planning will be needed to address this challenge, and also to better integrate the educational requirements in the energy sector with those of other sectors. Part of the answer will lie with e-orts to better anticipate emerging trends that influence education levels and specialisations. Another aspect concerns identifying transversal skills, i.e., skills that are not exclusively related to a particular job or task but rather are applicable to a wide variety of work settings and roles. Despite positive trends and recent developments, skills gaps and shortages are increasing and likely widespread across countries unless proactive measures are taken. In highincome countries, including those even with well-developed skills anticipation systems, a lack of both technical and transferable core skills remains a significant recruitment barrier for employers, while developing countries are especially challenged by deficiencies at higher skills levels. Many of the most significant changes in skills and occupations in the green economy are taking place at higher skill levels, requiring university education. This represents a critical barrier for many low-income countries, where university graduates and high-level skills in general tend to be in short supply. These may constitute a constraint on the net-zero transition.
Occupational patterns and skill levels Renewable energy employs people across all trades and levels. IRENA’s analysis of the human resource requirements for the solar PV (IRENA, 2017a) and onshore wind (IRENA, 2017b) industries shows that over 60% of the workforce requires minimal formal training. Individuals with degrees in fields such as science, technology, engineering and mathematics (STEM) are needed in smaller numbers (around 30%). Highly qualified non STEM professionals (such as lawyers, logistics experts, marketing professionals or experts in regulation and standardisation) account for roughly 5%, while administrative personnel make up the smallest share (1 4%). In oshore wind, the proportion is similar: those with lower skills and training again represent the largest share of employment (47%) (IRENA, 2018). When it comes to the value chain of SWHs, less than 10% of the human resources required are for STEM and non-STEM professionals. In comparison, the remaining 90% required are workers with minimal or no certification (IRENA, 2021d) (see Figure 15).
THE JOBS AGENDA FOR A JUST TRANSITION
As the world navigates to a climate-safe energy system centred on renewables and energy e«ciency, it seems clear that more energy jobs will be created than lost, especially if governments ensure strong policies in support of deployment and integration of renewables. Workforce development is essential, and job quality deserves increasing attention. While skills training is important, policy makers need to understand it within a broad, holistic policy framework. Among other measures, that framework embraces industrial policies, labour market policies, social protection measures, and diversity and inclusion strategies. This final chapter discusses this holistic approach for a smooth and successful energy transition.
A comprehensive policy framework for jobs and a just energy transition This report reveals the need for a holistic approach to policy making that focuses not only on policies and programmes in the energy sector itself, but builds on a sophisticated understanding of the close inter-connections between energy, the economy at large, and social and planetary sustainability. This implies a need for renewable energy policies that are linked to structural change and the assurance of a just transition – all within a holistic global policy framework (see Figure 22).
A critical dimension in all of this is the proper balance between the public and private sectors – and their respective strengths and weaknesses. In past years, the policy landscape has been focused on enabling private sector actors and reducing risks, and it has yielded maturing technologies and lower costs. But this alone will no longer su«ce. As the climate challenge mounts, strategic action is urgently needed to deliver a comprehensive, holistic and just transition. A speedy and co-ordinated approach requires governments to take on a much more proactive role, acting in the public interest and safeguarding broad social imperatives. This may occur through regulations and incentives, public investment strategies, and public ownership of transition-related assets and infrastructure (both at national and community levels). As the policy discussion continues to evolve, it is likely to yield varying answers in di-erent national settings.
Market dynamics and energy demand Rising energy demand is a key issue for the shipping sector, with increasing trade leading to increasing demand. Factors such as global gross domestic product (GDP), as well as trade and manufacturing sector activity have been the key drivers shaping energy demand in the international shipping sector to date. As the adoption of energy efficiency (EE) measures in international shipping increases, the nexus of GDP, trade and energy demand may decouple progressively. However, given the pivotal role of international shipping in the global economy, the role of EE has limitations in terms of carbon reduction potential; hence the key role renewable energies will play in decarbonising this sector by mid-century.
Starting now, energy efficiency needs to be promoted and effectively embraced. Not only will this result in an immediate reduction of carbon emissions, but it can also potentially result in important energy savings and thus increase monetary revenue for shipowners and operators. From a technological perspective, renewable energies are competitive. Indeed, renewable energy costs have been falling at an accelerated rate. For renewable energy-derived fuels to become the prime choice of propulsion, further cost declines are needed, particularly in renewable energy supportive technologies (e.g. electrolysers and hydrogen storage). In this context, sectoral decarbonisation can be accelerated and ambition can be raised beyond the climate goals by fostering investment in the production of renewable fuels. For this purpose, adopting relevant and timely co-ordinated international policy measures is greatly needed. It also requires stakeholders to develop broader business models and establish strategic partnerships involving energy-intensive industries, as well as power suppliers and the petrochemical sector.
The International Maritime Organization (IMO) indicates that by 2050 maritime trade could increase between 40% and 115% in comparison to 2020 levels. At present, about 99% of the energy demand from the international shipping sector is met by fossil fuels, with fuel oil and marine gas oil (MGO) comprising as much as 95% of total demand (IMO, 2020a). If no actions are taken, IMO has flagged that GHG emissions associated with the shipping sector could grow between 50% and 250% by 2050 in comparison to 2008 emission levels. Clearly this broad range of projected GHG emissions flags a level of uncertainty in terms of how will the sector evolve over the next 30 years. Nonetheless, even the lower-level band of GHG emissions increase is an area of great concern in terms of global warming. Another area of concern is that international shipping emissions fall outside national GHG emission accounting frameworks. To address these concerns, this report maps out a path to a decarbonised maritime shipping sector. Its primary focus is the analysis of a pathway to a mitigation structure that will limit global temperature rise to 1.5 degrees Celsius (°C) and bring CO2 emissions closer to net zero by mid-century. In support of the global efforts to decarbonise the shipping sector, this report includes an update on IRENA’s previous work in the field of shipping. To this end, this report analyses the market dynamics of the shipping sector and the latest trends regarding trade volumes, associated energy demand and carbon emissions. Additionally, the report evaluates the technology readiness of the renewable fuels suitable to the shipping sector followed by an analysis of long-term energy scenarios in which a pathway towards the deep decarbonisation of the shipping sector by 2050 is examined and tailored recommendations to accelerate the decarbonisation of the shipping sector are proposed.
MARITIME TRADE DYNAMICS Between 80% and 90% of international trade is enabled through maritime means, i.e. bulk and container carriers, as well as oil and chemical tankers. Together, these types of vessels account for 20% of the global fleet, but they are responsible for 85% of the net GHG emissions associated with the shipping sector (IRENA, 2019a). International cargo shipping activity is correlated to a certain extent with the global economy, as it provides a logistical downstream service to the production and allocation of goods and energy vectors. Thus, historical global GDP developments and trade volumes of goods tend to be analysed to estimate the intensity of the nexus of economic growth, maritime trade and subsequent energy needs. Since 2000, global GDP has grown at an average rate of about 3%. However, due to the financial crisis of 2008, between 2008 and 2009, the average growth rate dropped significantly to -1.5%. Thereafter, the economy bounced back (World Bank, 2020).
Figure 1 shows that in recent years, the maritime trade of main bulks and trade from tankers grew at a slow pace, while the trade of dry bulks (i.e. minor bulks), containerised trade and residual general cargo dominated the global trend. Together, between 2010 and 2018, these key cargo groups presented an average annual growth rate of 3.42%. However, aligned with the performance of the global economy, trade volumes over recent years have grown at a slower pace, from 4.09% in 2017 to 2.70% in 2018. Geopolitical factors such as the trade tensions between some of the largest world economies has been identified as one of the key factors disrupting global maritime trade. Import restrictions and tariff increases involving North African and West Asian countries have also been identified as decelerating factors of maritime trade in recent years. The COVID-19 pandemic has exacerbated these trends where the United Nations Conference on Trade and Development (UNCTAD, 2020a) noted an overall fall of 4.1% in marine transport and trade by the end of 2020.
While the 2008 financial crisis may shed some light on how the economy will perform as the world recovers from the COVID crisis, uncertainty remains about the performance of the global economy post-2020. Assuming adequate and wellfocused policy support comes from governments around the world, as economic activity normalises, it is projected that global GDP will grow by 5.8% in 2021 (IMF, 2020). However, it is uncertain how the COVID pandemic will affect the global economy when discussing different future trends. The net impact to the shipping sector, particularly to maritime trade volumes, is also under discussion. If the global economy bounces back at a 5.8% rate in 2021, it is likely that net global maritime trade will follow this trend and continue growing at an annual rate close to about 3.5%. Thus, enabling the use renewable energy fuels and implementing EE measures to avoid a rapid growth in GHG emissions are of prime importance.
The key motivations for building larger ships greatly depend on the application of the vessel. Larger ships need less energy to move a given amount of freight over a given distance. Therefore, vessel size reflects an economy of scale practice applied by shipping manufacturers and shipowners, thus maximising profits by becoming more efficient. Understanding the average age of the fleet serves as a proxy to estimate when most new-builds will be commissioned. Thus, it indicates the level of urgency needed to develop sustainable shipping alternatives, avoid stranded assets and kick-off the shift to manufacturing net-zero and carbon-zero vessels. A ship’s technical lifetime usually ranges from 25 to 30 years. Based on their theoretical lifespan and as illustrated in Figure 4, VLS and LS need to be replaced by 2030. However, to achieve this target, first movers operating on renewable fuels will need to be commissioned much earlier.
Not surprisingly, although LS and VLS represent around 20% of today’s global fleet, together these vessels are responsible for about 85% of net GHG emissions associated with the shipping sector (IRENA, 2019a). In 2018, the fuel mix for international shipping included 79% HFO, 16% MDO, 4% LNG and less than 0.1% methanol. Therefore, this report primarily focuses on the decarbonisation of international maritime shipping, which is mostly composed of LS and VLS.
NAVIGATION ROUTES AND BUNKERING INFRASTRUCTURE Ports are essential for the global economy, with 80-90% of trade accounted for in shipping. To mitigate GHG emissions in the shipping sector, it is vital to focus development on the supply chain and logistics infrastructure. As stated by the European Seaports Organisation (ESPO, 2018), there are 12 key types of port infrastructure that are identified through investment. These 12 elements can be further divided into two base infrastructure categories, terminal infrastructure and operational equipment (Table 2).
Port location plays an important role in shipping logistics, requiring access to large quantities of land located near a major manufacturing district and/or access to raw materials. Key container ports globally include Los Angeles, Rotterdam, Shanghai and Singapore. The top ten busiest container ports internationally are predominantly based in China, with Shanghai being the leading port (WSC, 2018). In 2018, Shanghai accounted for 42.01 million TEU (twenty-foot equivalent unit)4 in container trade, followed by Singapore with a total of 36.60 million TEU (WSC, 2018). Furthermore, 20 ports are responsible for 45% of the global container trade (UNCTAD, 2019).
(UNCTAD, 2020c). Decarbonisation in these key ports can dramatically decrease CO2 emissions from shipping infrastructure. As with port locations, shipping lanes are vital in optimising trade routes. Geographical boundaries are an important consideration in plotting ship trajectories, and certain key global maritime routes provide access between the international industrial regions globally. The most important global routes are the Panama Canal, the Straits of Malacca and the Suez Canal (see Figure 11).
The Panama Canal provides direct access between the Atlantic and Pacific oceans without circumnavigating Cape Horn. In 2019, the Panama Canal reported 13 785 ship passages and a total of around 229 million tonnes of goods (Georgia Tech, 2020). The Suez Canal is in Egypt, which connects the Mediterranean and the Gulf of Suez. This canal provides a direct route between the Atlantic and Indian oceans, allowing shorter trade routes for Europe and Asia. The Strait of Malacca is an important route that connects the Indian Ocean and the Pacific Ocean. This route is vital for trade between all the island nations in the Pacific and provides a shorter route for trade from the Middle East.
In the process of decarbonising the international shipping sector, decarbonisation measures and opportunities at ports need to be acknowledged. For instance, enabling cold ironing (CI) would significantly drive down fossil fuel consumption during docking hours provided the electricity provided is from 100% renewable sources. While CI infrastructure is not widespread across the globe, it is expected that over the coming years several ports will develop shore power infrastructure. In parallel, attention needs to be given to port and terminal handling infrastructure and to port vessels. However, while it is important to address the origin of these emissions, it should be noted that such emissions are not accounted for as international shipping but rather as domestic navigation, potentially making them subject to more stringent measures such as the California Air Resources Board (CARB) restrictions in California. For further detail and information on decarbonisation measures and opportunities at ports.
RENEWABLE FUELS AND TECHNOLOGY READINESS
KEY MESSAGES: › In 2019, the average costs of HFO and LNG fluctuated around USD 41 per megawatt hour and USD 19/MWh. Advanced biofuels can be immediately harnessed by the shipping industry; current technological readiness allows for fuel blends of up to 20% without engine modifications, although tests have been conducted using a maximum blend of 30%. Production costs ranges for advanced biofuels are similar among the various alternatives, i.e. USD 72/MWh to USD 238/MWh. Avoiding the use of food crops for biofuels is critical. Therefore, the use of waste fats, oils and greases is essential to produce fatty acid methyl ester (FAME) biodiesel and hydrotreated vegetable oils (HVOs) that do not hinder food security or land availability. Biomethanol from lignocellulosic biomass is another potential option.
Technological readiness of fuel and engine FAME is a popular biodiesel due to its shared similar properties with fossil fuel diesel. This form of biofuel is produced from fats, oils and greases (FOGs) that are recycled from waste, which can come from a wide range of sources such as food production waste from factories, restaurants and households, or oil seeds such as rapeseed and palm seed (ETIP, 2020). At the current state of the technological readiness, fuel blends of up to 20% do not require any engine modification in a ship (ICCT, 2020). However, if used as a drop-in fuel,5 furthermore, additives are required in the fuel system to prevent bacterial growth and lower pour point. To date, only trials have been completed using FAME blends, with a maximum of 30% being used by a vessel funded by the Mediterranean Shipping Company (Biofuels International, 2019). Also important to note that 100% methanol engines are a proven technology; hence, new ships can easily rely 100% on biofuels.
However, DME has the lowest energy density in comparison with other liquid biofuels at 21.24 GJ/m3 Among biofuels, there are various degrees of emissions released dependent on which feedstocks are used. Figure 14 shows that advanced biofuels (those that use second-generation feedstocks) produce overall lower life cycle emissions than first-generation feedstock biofuels. Indeed, all biofuels negate emissions compared with conventional fuels such as HFO, LNG and MGO, while FAME, HVO and FT have similar energy densities to these fuels.
Technological readiness of fuel and engine Methanol can be used today as a ship fuel in an ICE. Currently, methanol can be used in two types of ICEs, in four-stroke and two-stroke engines, and this technology is quite well developed (DNV GL, 2019b). Many commercial ships have been retrofitted with methanol engines. These engines have been installed in eleven new chemical tankers operated by Waterfront Shipping, Marinvest and MOL, with another eleven on order. These vessels are dual-fuel methanol engines with 10 megawatts (MW) of total power. Other commercial examples include Stena Lines’ Stena Germanica, which was retrofitted with a dual methanol/diesel engine and has a total energy output of 24 MW (Ming Liu, 2019). In total, there are nine examples of commercial methanol-fuelled ships globally (ICCT, 2020). Further research is being conducted, and the expansion of a methanol-fuelled fleet is planned in the near future to target GHG emission reduction goals by 2050 (Balcombe et al., 2019). Despite the success of using methanol fuel in ship engines and its commercial availability, the technology is still in development (Ming Liu, 2019), and existing vessels are required to replace fuel injectors and the fuel supply system. In terms of the engine itself, newly developed two-stroke engines made by well-known engine manufacturers can operate perfectly with methanol.
In the production of methanol, there are multiple pathways. The current method of producing methanol uses coal, which is referred to as brown methanol, and NG, referred to as grey methanol (IRENA, 2021a). These production methods are the most carbon intensive and are not sustainable for the future of methanol production. The ideal production method for methanol is green methanol production, which is split between e-methanol and bio-methanol. E-methanol is produced from sourcing H2 from electrolysis powered by renewables and utilising renewably sourced CO2 from BECCS and direct air capture (DAC) (IRENA, 2021a). Bio-methanol is produced using biomass gasification and reformation. The feedstock for this method is usually forestry and agricultural waste and by-products, biogas from landfill, sewage, municipal solid waste, and black liquor from the pulp and paper industry (IRENA, 2021a).
KEY MESSAGES: IRENA’s analysis includes four energy scenarios for 2050. The primary focus comprised the analysis of a 1.5°C Scenario.7 This chapter builds on IRENA’s REmap methodological approach, in which scenarios are aligned with IRENA’s World Energy Transitions Outlook (2021b), and analyses a mitigation pathway to limit global temperature rise to 1.5°C. The active adoption of energy efficiency (EE) measures will be critical to reduce energy demand and thus CO2 emissions in the immediate term. In comparison to 2018 levels, a Base Energy Scenario (BES) and Planned Energy Scenario (PES) imply a net energy demand of 12.4 exajoules (EJ) and 11.8 EJ, respectively, by 2050. The IRENA 1.5°C Scenario pathway comprises a lower demand for maritime transport services combined with the successful adoption of EE measures, resulting in a final demand about 1.5 times less, i.e. 7.9 EJ, by 2050.
For 2018, the reported activity level stood at 60414 billion tonne-miles. Under a BES behaviour that follows a historical trend, it is expected that activity levels by 2050 would grow by about 90% in comparison to 2018 levels, while for PES and TES scenarios, activity levels would grow by about 80% and 62%, respectively. In contrast, the 1.5°C scenario considers a growth of about 56% in comparison to 2018 levels. Having presented activity level projections results, it is important to note that in the long term there are several complex drivers influencing final activity levels of the shipping sector and thus energy demand. For instance, large trade initiatives such as China’s Silk Road Economic Belt, also known as the One Belt One Road (OBOR), will influence the future dynamics of the shipping sector. Simultaneously, as the world embarks on a total decarbonisation of the economy, the activity and energy demand from oil and gas (O&G) tankers will decline. Circular economy principles and consumers favouring locally produced goods will also lead to a decline in the activity level of the shipping sector and thus less energy demand.
DECARBONISATION ANALYSIS Figure 31 clearly depicts that significant efforts will be needed to foster the use of renewable fuels, including biofuels, green H2 methanol and particularly green ammonia, in the decarbonisation pathway leading up to 2050. In the short term, LNG is expected to play a role in curbing the use of fuel oil and MGO, but biofuels are also expected to play a key role. In 2020, the share of biofuel in the energy share was below 1%. However, in recent years the use in biofuel has flourished, with an average increase of about 30% per year. Overall, the 1.5°C Scenario implies that from now until 2050, the use of advanced biofuels in the shipping sector would have to grow at an a.a.g.r. of about 9%, thereby reaching an end use of around 1 EJ in 2050.
LNG will likely have a role in reducing sulphur emissions and, to some extent, reducing carbon emissions associated with the shipping sector. However, results from PES indicate that an LNG pathway would result in as much as 746 Mt of CO2 by 2050. In contrast, the 1.5°C Scenario, which proposes a pathway with a 70% share of renewable fuels, would result in 144 Mt of CO2, thoroughly supporting the decarbonisation of international shipping by achieving an emission reduction of 80% in comparison to 2018 levels (see Figure 31). Overall, the decarbonisation pathway analysed in this report would be achieved by four key measures: i) indirect electrification by employing powerfuels; ii) employment of advanced biofuels; iii) improvement of vessels’ EE performance; and iv) reduction of sectoral demand due systemic changes in global trade dynamics. Figure 32 displays the estimated roles of these four emission reduction measures.
ENABLING ACTIONS TO RAISE THE DECARBONISATION AMBITION
IRENA 1.5°C Scenario represents a mitigation pathway to limit global temperature rise to 1.5°C and bring CO₂ emissions closer to net zero by 2050. Moving from nearly zero CO₂ emissions to net zero requires a 100% renewable energy mix by 2050 Achieving such a condition is uncertain due to scalability issues including the ability to deploy sufficient renewable infrastructure such as renewable power plants, biorefineries and e-fuel production plants (i.e. ammonia and methanol). Furthermore, end-use sectors besides shipping also have ambitious CO₂ reduction targets. Accordingly, end-use sectors risk competing with each other as they try to meet their increasing demand for renewable fuels. For instance, the shipping, aviation and road freight transport sectors are likely to compete with each other on the task of acquiring green H₂-based fuels, but the aviation and road transport sectors have a higher payment capacity than the shipping sector.
SUMMARY FOR POLICY MAKERS
The International Maritime Organization’s (IMO’s) Fourth GHG study 2020 reported that in 2018 global shipping energy demand accounted for nearly 11 exajoules (EJ), resulting in around 1 billion tonnes of carbon dioxide (CO2) (international shipping and domestic navigation) and 3% of annual global greenhouse gas (GHG) emissions on a CO2 -equivalent basis. Fossil fuels. i.e. heavy fuel oil (HFO), marine gas oil (MGO), very low-sulphur fuel oil (VLSFO) and, more recently on a small scale, the use of liquefied natural gas (LNG) currently provide up to 99% of the sector’s final energy demand. International shipping enables 80-90% of global trade and comprises about 70% of global shipping energy emissions. If the international shipping sector were a country, it would be the sixth or seventh-largest CO2 emitter, comparable to Germany.
The importance of cities in shaping global climate action Cities are a key driver of global economic growth, which over the past half century has been powered primarily by fossil fuels (coal, oil and natural gas), as illustrated in Figure 1. Cities are responsible for an estimated 67-76% of global final energy use and contribute three-quarters of global energy-related carbon dioxide (CO2) emissions (Edenhofer et al., 2014; IPCC, 2018). To tackle the global climate challenge, the 2015 Paris Agreement calls for limiting the rise in the average global temperature to well below 2 degrees Celsius (°C) and ideally below 1.5°C compared with pre-industrial levels (UNFCCC, 2015; IPCC, 2018).
Importantly, the end-use sectors of transport, buildings, industry and heating hold huge potential for emission reduction through substituting fossil fuels with renewables and other low-carbon sources (Figure 2). These sectors have strong relevance to cities. Therefore, it is crucial that cities participate actively in helping to reduce global carbon emissions through effective local actions, and; the decisions that municipal authorities make regarding urban design, planning and energy infrastructure will have profound implications for future global energy and emission profiles.
For cities, reducing today’s emissions as part of the global effort to reach net zero by 2050 is only part of the challenge. Another big challenge is meeting the continued growth in urban energy demand, given that cities remain the engines of economic growth and that urbanisation is expected to continue. Between now and 2050, 2.5 billion people are expected to be added to urban settlements worldwide (UN DESA, 2018). Growth in the urban population – in addition to rising living standards and improved energy services for those who currently lack access to modern energy sources – will greatly increase energy demand in cities. The International Energy Agency projects that urban demand will drive as much as 90% of future energy growth (Carreon and Worrell, 2018). The twin objectives of meeting rising energy demand while greatly reducing emissions will conflict if fossil fuels continue to dominate our energy systems. Reconciling these objectives in a meaningful way is a significant challenge facing cities.
Figure 4 illustrates the overall structure of coupling different sectors for enhanced energy system flexibility. For cities, the greatest potential of providing flexibility exists on the demand side and in end-use sectors such as buildings, transport and industry. The coupling can also take place between energy carriers on the supply side, for instance through powerto-gas, but this is beyond the scope of the study. Both approaches are instrumental to make the future energy system more integrated and flexible – a crucial enabler for scaling up the integration of variable renewable sources.
In essence, coupling different sectors, along with the support of intelligent energy management systems, can broaden the options for dispatching electricity generated from VRE sources with greater grid flexibility to the system. In turn, this enables increased shares of renewables in the energy mix, and thus reductions in energy-related carbon emissions. Importance of intelligent energy management systems in sector coupling Although the technological scope for sector coupling strategies is expanding, electrification remains a key means for coupling different end-use sectors, as illustrated in Figure 5. Overall, there are two methods of electrification through which non-power sectors (on the demand side) and energy carriers (on the supply side) can be coupled with renewable power generation, particularly during periods of low demand when surplus renewable electricity is available. These are direct and indirect electrification.
Direct electrification – through the use of technologies such as heat pumps with various sinks, EVs with smart charging, and electric stoves, boilers and furnaces – can be a way to replace fossil fuel consumption in end-use sectors such as buildings, transport and industry. (Indirect electrification is discussed later in this section.) With the progressive electrification of end uses, urban energy systems have the opportunity to harness intelligent energy management systems that can be applied across a greater array of coupled sectors to increase efficiency.
SECTOR COUPLING OPPORTUNITIES IN CITIES
This chapter highlights a range of sector coupling opportunities available for use in cities, with a special focus on the buildings sector. Specifically, it discusses the importance of energy efficiency in scaling up the use of VRE through sector coupling strategies; the opportunities for self-consumption of VRE; thermal energy storage as a sector coupling option to balance thermal energy demand and supply from variable renewable electricity. Electro-mobility and hydrogen are covered as both have emerged as promising technologies that can be applied in cities coupling different sectors. Lastly, the impact of urban infrastructure on applicability of sector coupling technologies in cities is also touched upon.
electricity consumption in buildings (UNEP, 2020; IEA, 2020b). Much of the thermal energy loss from buildings is through the building envelope (Nardi et al., 2018) (see Figure 8 for an illustration of heat flows through a building). Reducing such loss is crucial to minimise the need to replace fossil-based energy for space heating and cooling with renewable sources such as ground-source geothermal, solar thermal and heat pumps using various sinks. However, according to the International Energy Agency’s Tracking Buildings 2020, as many as two-thirds of countries have not yet issued standards for improving building energy performance (IEA, 2020c). This suggests that energy losses from building envelopes would remain substantial even for new buildings in some countries, unless building codes with stringent requirements for energy performance of the building envelope are put in place and enforced.
Improving the energy performance of the building envelope can be effective in minimising the energy demand for space heating and cooling. This can be achieved by adding adequate insulation depending on the climate zone, using low-emissivity glass, and sealing air leakage in new buildings as well as in old/existing buildings through retrofitting measures. In addition, the benefits of improving energy efficiency are obtained for the energy conversion of different energy carriers in the process of implementing sector coupling strategies, with the aim of improving overall system efficiency. Examples include power-to-heat through heat pumps, and EVs enhancing both engine and fuel efficiency in comparison to internal combustion engine vehicles. Moreover, this would increase the utilisation rate of power grids and reduce the need for and investment in transport fuel distribution infrastructure, thereby increasing overall system efficiency.
SECTOR COUPLING OPPORTUNITIES IN CHINESE CITIES
By the end of 2019, more than 60% of the Chinese population was living in cities and towns. These areas (including their surroundings) consume 85% of the country’s total energy supply. The industry sector accounts for most of this consumption (71%), followed by the buildings sector (19%) and the transport sector (10%), altogether contributing to around 70% of China’s energy-related CO2 emissions (SGCERI, 2019). At the 75th UN General Assembly in September 2020, Chinese President XI Jinping announced China’s aim to achieve carbon neutrality by 2060. Although this is a national target, local authorities are contemplating how they could contribute to achieve it, and how they can sustain continued urbanisation against this backdrop. Over the past decade, China has dramatically scaled up its renewable electricity generation capacity, particularly from variable sources such as wind and solar. Installations are set to continue to grow, according to the country’s draft 14th Five-Year Energy Plan and long-term carbon neutrality goal. This has placed demand on electric power grids to be much more flexible than they currently are, and poses a challenge for grid operators. However, it also presents an opportunity for cities to scale up local VRE applications and to make demand more flexible through sector coupling technologies and strategies – not just to support grid stabilisation, but also to take advantage of cheap electricity generated from VRE when demand is low, an economic gain.
Figure 12 provides a conceptual overview of the opportunities for sector coupling applications. IRENA’s Planning Platform for Urban Renewable Energy performed the overall analysis based on data collected on-site and provided by local experts, combined with data available from satellite imagery and GIS-based analysis, as well as meteorological data, to evaluate the potential of the sector coupling opportunities. More details are presented below.
Potential for energy demand reduction through efficiency measures. This includes, firstly, the building envelope retrofitting potentials (building materials and insulation layers) and retrofitting rate (targeting different building uses and construction ages); and, secondly, an evaluation of the energy and emission savings potential through efficiency measures for appliances and lighting. The study estimated energy savings up to 37.1% by 2050 according to the retrofitting strategy (renovation rate per building type and construction period) and retrofitting targets (new building codes, improved energy performance of building envelope and efficiency measures for electrical appliances). The cumulative energy consumption savings over the studied period can reach up to 67 million tonnes of coal equivalent in 2050 when combining building envelope retrofitting (3% annual rate for buildings built before 2010 and 2% for buildings built before 2020), performance building insulation for new buildings (thick insulation, triple glazing) and appliance efficiency measures (up to 25% more efficient electrical appliances). When the energy efficiency measures on the demand side are optimally combined with supply-side solutions locally (e.g. the combination of heat pumps with rooftop solar PV, electric battery storage and thermal energy storage), carbon emissions emitted for energy services are expected to decrease by around two-thirds.
SECTOR COUPLING OPPORTUNITIES IN COSTA RICA
Already today, electricity generation in Costa Rica is close to 100% from renewable energy sources – mainly from hydropower, followed by geothermal, wind, and smaller shares of biomass and solar. The country has set a new target to achieve total decarbonisation by 2050 However, huge challenges remain, as oil accounts for 65.8% of the national energy mix, consumed mostly by the transport and industry sectors (83.2% and 12.4%, respectively) (MINAE, 2018). In 2018, energy-related CO2 emissions in Costa Rica reached 7.63 million tonnes (a near doubling from the levels of the 1990s), of which three-quarters come from the transport sector (IEA, 2020d). If measures are not taken, the country’s emissions are estimated to increase 60% between 2015 and 2030, and 132% by 2050 (Rivera, Obando and Sancho, 2015). Electrification of the transport sector can offer a realistic option for decarbonisation. In the forthcoming IRENA study on Costa Rica (IRENA, forthcoming-b), different pathways are analysed to achieve total electrification of the transport sector and increase the use of renewables in the industrial sector. However, one of the key findings demonstrates that without taking the necessary demand- and supply-side measures, and taking advantage of sectoral coupling opportunities, this goal will not be possible.
Key findings on sector coupling from the case studies In an overall planning study for districts of the Greater Metropolitan Area of Costa Rica, IRENA analysed how municipalities could play a key role in achieving the country’s decarbonisation goals. The study explored how districts could support national renewable energy planning through the deployment of distributed generation to cope with the electrification of end-use sectors, which provide opportunities for sector coupling. Different long-term scenarios were evaluated, including a net zero carbon emission (NZC) scenario that accounts for the most ambitious targets for the years 2035 and 2050. The detailed study of the districts under the different scenarios shows that reaching near net zero emissions is technically possible, with a 90% reduction of emissions in cities by 2050 through the deployment of solar PV, energy storage and heat pump technologies, combined with electro-mobility. Increasing this ambition is also possible with larger penetration of solar PV and energy storage at the city level, combined with grid upgrades and green hydrogen strategies.
The integration of distributed energy systems allows the renewable energy share in cities to increase by between 14% and 40% by 2035, depending on the city, compared to the current national targets. Meanwhile, for most cities, decarbonisation will result in savings of up to 18% by 2050, compared to a scenario of continuing the current policy and action levels. One of the key findings is that scaling up the use of local renewable energy resources, together with imported renewable energy from the national grid, would require a large investment in grid infrastructure. However, this can be minimised by optimising the flexibility of the energy system through demand response measures and, most importantly, power-to-X applications that enable sector coupling and smart management.
The energy transition has shifted from a niche movement to the global mainstream. The need to halve worldwide emissions by 2030, and to reach net zero emissions by 2050, has been recognised not only by national leaders participating in global climate talks, but also by local authorities tasked with developing future urban infrastructure. Cities have been given a greater role in both climate mitigation and adaptation, while more and more cities across the globe are joining the race to net zero. Renewable energy resources are expected to scale up significantly over the next three decades. The direct use of renewables can help reduce emissions from end-use sectors such as transport, buildings and industry – all of which are closely relevant to cities. Importantly, these three sectors can benefit greatly from the power sector by applying sector coupling technologies and strategies to provide energy services that otherwise would not be met with electricity. In return, higher shares of variable renewable energy sources can be integrated into the power mix as a consequence of enhanced grid flexibility.
Access to modern energy is a pre-requisite for socio-economic development. Yet, over 750 million people continued to live without electricity access in 2019 and many more had to contend with unreliable supply. The consequent economic and social cost is significant and a key argument for mobilising urgent action and investments to reach universal access by 2030 – as targeted under Sustainable Development Goal 7. An integral part of achieving the 2030 Agenda and building back better from the COVID 19 pandemic will be steps to catalyse rural economies, create local jobs and ensure resilient public infrastructure. Access to modern energy should be a central pillar of such recovery and will contribute to a more inclusive and just energy system in the long-term.
Figure ES.1. Ecosystem needs for livelihood-centric approach
The absence of any one of the above components of the ecosystem compromises the sustainability of the whole. There are also strong interconnections between the parts. The efficiency of technology, for instance, influences the overall energy needs and viability of solutions, which in turn affect the appropriate ownership models and suitable cashflow-based financial products. Delivering on such an ecosystem in a given area requires co-ordinated efforts across stakeholders. Certain cross-cutting elements – relevant to each ecosystem component – must also be in place for optimal and inclusive outcomes. These include inclusive partnerships, a gender lens and knowledge sharing across communities, countries and regions.
Access to affordable, modern and reliable energy services is a pre-requisite to support sustainable livelihoods 1 and advance socio-economic development. In recent years, political and financial commitment towards universal energy access has grown, catalysed in part by the adoption of a dedicated target under Sustainable Development Goal 7 of the 2030 Agenda for Sustainable Development. Falling costs and improved reliability of decentralised energy solutions have provided further impetus to energy access efforts with the stronger involvement of communities, local entrepreneurs and the private sector.
Linking decentralised energy supply to livelihoods
Decentralised renewable energy solutions promise to play an important role in reaching universal electricity access in a timely manner. Linking deployment of such solutions to people’s livelihoods can translate into improved incomes, reduced drudgery, greater resilience and longterm social security, thus contributing to multiple SDGs. This chapter first discusses the evolution of livelihoods’ perspective in the rural development context and highlights the implications for decisions around energy supply. It then outlines the progress made to date, and key gaps to be addressed to maximise benefits.
POVERTY, LIVELIHOODS AND ENERGY ACCESS Poverty is a persistent challenge that has been understood and measured in different ways over the past several decades. Since the 1990s, the conceptual thinking has evolved to encompass poverty’s economic, ecological, social, cultural and political dimensions. Although different approaches emphasise different aspects of poverty at the individual or collective level – such as income, capabilities and quality of life – poverty is generally seen as multi-dimensional (UNDP, 2020).
The case for tailored energy services to support diverse livelihoods. The interconnections among poverty, livelihoods and energy are increasingly well known and established. A lack of access to reliable, affordable and sufficient energy remains a critical infrastructure gap in many emerging economies that hinders people’s ability to strengthen existing or explore new livelihood opportunities. Access to energy enables opportunities that can help people reduce drudgery, improve productivity, raise incomes and enhance resilience to external shocks and stresses. The indirect benefits are also multi-fold in terms of improved access to education, health care and information. In the agriculture sector, for instance, which supports livelihoods of over 2.5 billion people globally (FAO, 2016), growth in energy use for various activities is directly linked to improved yields, incomes, resilience and food security outcomes (FAO, 2000). The provision of affordable and reliable energy services at each stage of the value chain – primary production to post-harvest processing to consumption – can bring substantial benefits for farmers’ and other stakeholders’ incomes, productivity and resilience (IRENA, 2016b; IRENA and FAO, 2021).
In practice, this entails mapping out energy flows throughout relevant economic value chains (from production to consumption/consumer), identifying existing or potential income-generating activities where energy can enable value, assessing current landscape of access to financing and skill levels and assessing opportunities where decentralised renewables could be introduced in a viable manner. It is important to emphasise that while the topology of value chains, whether for agriculture or handicrafts or tourism, may be the same, the energy needs at each step vary from context to context depending on the scale and mechanisation of processes, existing market linkages and access to energy. A dairy farmer in Kenya, for instance, likely requires energy solutions for lighting, water pumping and chilling at the farm level. But in India, which has a well-developed milk collection system, chilling need not be done at the farm level (REEEP, 2017).
An enabling ecosystem for supporting livelihoods with decentralised renewables
Creating long-term, resilient livelihood opportunities for under-served populations requires an inclusive approach with solutions and policies that are customised to local conditions and conducive to local entrepreneurship and innovations. Over the past decades, across geographies, most efforts to foster livelihoods focus on the poor as a labour force. The labour opportunities provided have often led to the destruction of inter-generational rural livelihoods and facilitated migration to urban areas. Such opportunities are often in the informal sector, involve mismatched skills sets and generally involve working arrangements that do not advance decent work conditions (Suttie and Vargas-Lundius, 2016). Perceived barriers to the large-scale creation and sustenance of grassroots-based livelihoods include a lack of financing and skills, insufficient access to support ecosystem for local entrepreneurs and community leaders, unreliable access to energy and other infrastructure services, inefficient and outdated technology, and high transaction costs for market linkages. Decentralised renewables offer opportunities for local ownership, innovation and entrepreneurship in an effective manner, allowing tailored access at the grassroots level. Improving efficiency of existing appliances make energy solutions more affordable, thus reducing drudgery and in many cases catalysing socio-economic development. To realise these benefits and have a sustained impact, an inclusive ecosystem approach is needed for decentralised renewables.
The absence of any one of the above parts of the ecosystem compromises the sustainability of the whole. There are also strong interconnections between the parts. The efficiency of technology, for instance, influences the overall energy needs and viability of solutions, which in turn affect the appropriate ownership models and suitable cashflow-based financial products. Delivering on such an ecosystem in a given area requires co-ordinated efforts across stakeholders (Box 6).
Forward and backward linkages Securing stable backward linkages and forward linkages is critical to the financial and business models of any enterprise. Forward linkages refer to commercial platforms, community-based organisations, market aggregators and distribution channels, while backward linkages refer to aspects related to the supply of all inputs, including raw material, labour, credit, technology, ownership models and cropping patterns, among others (Figure 5).
Decentralised renewable energy solutions allow enterprises to diversify their products/services and capture greater value by undertaking a larger number of value chain activities locally i.e. closer to where the raw material is produced. The agroprocessing of pulses, millet, cereals, spices and fruits by one entity can result in value addition (in terms of increased sales price) of up to 90% (SELCO Foundation, 2019). However, income levels, cash flows and ownership models, as well as the overall resilience of an enterprise, depend on strong and reliable forward and backward linkages. Literature has shown that additional income generation potential is modest at best in the face of market access limitations in rural areas (Ministry of Foreign Affairs of the Netherlands, 2013).
Creating the ecosystem for supporting sustainable livelihoods with decentralised renewables
Access to modern energy solutions is often cited as one of the pre-requisites for socio-economic development. Yet, over 750 million people continued to live without electricity access in 2019 and many more had to contend with unreliable supply. The consequent economic and social cost is significant and a key argument for mobilising urgent action and investments to reach universal access in a timely manner. An integral part of building back better from the COVID 19 pandemic will be steps to catalyse rural economies, create local jobs and ensure resilient public infrastructure. Access to modern energy will be a central pillar of such a recovery and of building a more inclusive and just energy system in the long-term. Linking decentralised renewable energy supply with livelihoods is an important step. It offers the opportunity to translate investments in electricity connections and kilowatt hours into higher incomes for communities and enterprises, local livelihood opportunities and well-being for large populations in rural and peri-urban areas, although it is not the only pre-requisite. Achieving this transformative change requires greater efforts than simply deploying decentralised systems or delivering units of electricity. As noted in this brief, it requires investing in an ecosystem that can foster technology solutions tailored to livelihood needs and deliver the financing, capacity and skills, market access and policy support to realise the full benefits of decentralised renewable energy.
Access to modern energy is a pre-requisite for socio-economic development. Yet, over 750 million people continued to live without electricity access in 2019 and many more had to contend with unreliable supply. The consequent economic and social cost is significant and a key argument for mobilising urgent action and investments to reach universal access by 2030 – as targeted under Sustainable Development Goal 7. An integral part of achieving the 2030 Agenda and building back better from the COVID 19 pandemic will be steps to catalyse rural economies, create local jobs and ensure resilient public infrastructure. Access to modern energy should be a central pillar of such recovery and will contribute to a more inclusive and just energy system in the long-term. Decentralised renewable energy solutions promise to play an essential role in reaching universal energy access in a timely manner. Linking decentralised renewables with livelihoods is an important step. It offers the opportunity to translate investments in electricity connections and kilowatt-hours into higher incomes for communities and enterprises, local livelihood opportunities and well-being for large populations in rural and peri-urban areas. However, it is not the only pre-requisite. Achieving this transformative change requires greater efforts than simply deploying decentralised systems or delivering units of electricity. It requires investing in an ecosystem that positions the diversity of people’s livelihoods (rather than technological solutions) at the centre of energy access efforts, and delivers tailored energy solutions, the financing, capacity and skills, market access and policy support to realise the full benefits of decentralised renewable energy.
Since the historic signing of the Paris Climate Change Agreement in 2015, nearly all countries have committed to limiting the increase in the average global temperature to well below 2 degrees Celsius (°C) this century compared to pre-industrial levels, and preferably to 1.5°C, and many are now committing to net zero strategies by mid-century. However, IRENA’s analysis for the 2021 World Energy Transitions Outlook (WETO) which depicts a 1.5°C pathway, finds that national energy plans and targets, including the first round of Nationally Determined Contributions (NDCs) under the Paris Agreement, fell far short of this goal and, at best, would only result in a stabilisation of emissions (IRENA, 2021a). Meanwhile, climate-related impacts are worsening, disproportionately affecting low-income and marginalised population groups. Moreover, while countries have made significant progress related to climate mitigation and adaptation to date, most low-income countries still lack the necessary funding to commit to a fair and equitable energy transition.
Overview of NDCs as of November 2021
Recognising that ambition needs to grow to get closer to meeting its goal, the Paris Agreement requires NDCs to be revised and submitted to the UNFCCC secretariat every five years – also known as the Agreement’s ratchet mechanism. Additionally, each successive NDC needs to represent a progression compared to its previous version and should reflect the country’s highest possible ambition. To date, 193 Parties have ratified the Paris Agreement (up from 190 in 2020 with South Sudan, Turkey and Iraq ratifying the Agreement in 2021), and 194 Parties have submitted NDCs 1 (Figure 1).
As of 15 November 2021, 151 Parties had submitted new or updated NDCs. Of these, less than half (91 Parties) – collectively representing around 63% of global GHG emissions in 2018 – had enhanced ambitions in their new or updated NDCs relative to their previous target. Of the remaining Parties that submitted new or updated NDCs in 2020 or 2021, 60 Parties – which accounted for a further 17.5% of global emissions in 2018 – submitted NDCs with either the same emission reduction targets, increased emissions compared to their first NDCs, or emissions reduction targets which are not comparable to their initial NDCs (Climate Watch, 2021a). There were still 27 Parties – which represent 3% of global emissions – that had expressed an intention to submit a new or updated NDC but had yet to do so by mid-November. Lastly, there were 16 Parties – representing the remaining 16% of global emissions in 2018 – that had not yet given any indication regarding their intention to update their NDCs with increased ambition (Climate Watch, 2021a). There are a number of major emitters that have yet to submit a new or updated NDC and although the number of submissions has been increasing, more and stronger targets are needed.
the end of the century (IEA, 2021). However, this still leaves the world short of the goals outlined in the Paris Agreement. To stay within a global mean temperature rise of 1.5°C, it will be necessary to reduce emissions by about 45% from 2010 levels by 2030, with the aim of reaching net zero emissions by 2050 (IRENA, 2021a). Figure 3 shows the projected trends in global CO2 emissions under the 1.5°C Scenario, along with carbon emissions abatement from the energy transition solutions identified in IRENA’s WETO.
Renewable energy is a key option for reaching climate goals, with more than 160 Parties planning to reduce energy sector emissions through renewable energy-based mitigation action focused on the power sector. A detailed analysis of the renewable energy component of NDCs is presented in Section 2. End uses are covered in about less than one-third of submissions while other crucial areas such as energy efficiency and grid improvement are addressed in about 27% and 24% of submissions respectively (UNFCCC, 2021a). To achieve the energy transition, much more needs to be done to decarbonise heating and cooling uses and transport, as together, these accounted for almost 80% of energy consumption in 2019.
In fact, one encouraging trend has been the number of countries committing to long-term net zero targets. As of November 2021, 177 countries (about 90% of all countries) have revealed that they are considering net zero targets. Of these countries, nine have declared that they have achieved net zero emissions, 16 have net zero targets written into law, 59 have mentioned net zero in policy documents, 21 have made a declaration or pledge to reach net zero, and 72 have ongoing discussions regarding net zero targets (Net Zero Tracker, 2021; United Nations, n.d.; United Nations, 2021; World Bank, 2021). To achieve long-term net zero goals, countries need to make substantial progress over time in advancing energy transition technologies such as renewable energy and energy efficiency, which emphasises the need for stronger 2030 commitments.
Renewable energy components of NDCs
Setting the world on a climate resilient pathway in line with the Paris Agreement depends on a global transformation of the energy system towards clean energy. Significant scaling-up of renewable energy deployment, enhanced energy efficiency, and electrification of end-use sectors such as heating and transport, can together meet 70% of abatement potential (25%, 25% and 20% respectively) (IRENA, 2021a). Given its vital role in achieving global climate goals, this section focuses on the renewable energy components of the NDCs. As of 15 November 2021, 182 Parties had included renewable energy components in their NDCs, of which 144 had a quantified target. From these targets, 109 focus on power and 30 explicitly mention renewables in heating and cooling or transport. Only 13 Parties have committed to a percentage of renewables in their overall energy mixes. They include the Bahamas, 7 China, Eswatini, the European Union, Ghana, India, 8 Indonesia, Jamaica, Maldives, Mauritius, Nepal, Pakistan and Paraguay. Alt
hough the direct use of renewables for heating and cooling (e.g. bioenergy, solar thermal or geothermal energy) and transport (e.g. bioenergy) plays a considerable role in the energy transition, the focus on power is also critical. IRENA’s 1.5°C Scenario shows that electricity would be the main energy carrier by 2050, with more than a 50% direct share of total final energy consumption – up from 21% in 2018. This means that power additions must be from clean sources, and ambitious renewable targets are required to achieve a share of 90% in the electricity mix by 2050, as per IRENA’s 1.5°C Scenario (Figure 6).
TARGETS FOR RENEWABLE POWER IN NDCS Of the 109 Parties that have defined targets for renewables in the power sector in their NDCs, 49 presented them in the form of additions – mostly in the form of capacity (GW) and a few in terms of output (GWh) (Figure 7). Although commitments to adding renewable power (in terms of capacity or output) deliver many benefits – namely providing long-term clarity regarding the trajectory of the renewable energy sector, increasing investor confidence, and building a local industry with its associated socio-economic benefits – a target in this form does not give clear indication regarding progress towards achieving climate goals.
Achieving these targets would meet only one-third of what is required to stay in line with 1.5°C pathway (10.8 TW by 2030, before growing further to 27.8 TW by 2050) (IRENA, 2021a). Targeted capacity for solar PV and onshore wind would each need to rise five-fold compared to current projections if all targets were to be reached. 12 CSP targets would need to be more than eleven times higher, while those for onshore wind and geothermal would need to more than triple (Figure 8). This would require USD 10.5 trillion in new renewable power investment between 2020 and 2030, not accounting for the investment required to establish the enabling conditions for these projects to take place.
Climate finance and NDCs
Securing a climate-resilient future depends on the ability of the global community to direct global financial capital towards sustainable assets. Climate finance therefore plays a crucial role in achieving NDCs and transforming mitigation and adaptation commitments into actions. The investment needs are substantial and will require a much greater activation of all capital pools – both public and private – as well as a stepped-up redirection of financing from ‘brown’ to ‘green’ technologies, and a stronger emphasis on providing support to those countries that need it.
INVESTMENTS REQUIRED FOR THE ENERGY TRANSITION IRENA has estimated that the deployment of energy transition-related technologies required to put the world on the 1.5°C pathway necessitates USD 131 trillion of aggregate investment between 2021 and 2050. This represents an average annual funding requirement for the energy sector of about USD 4.4 trillion between 2021 and 2050 (Figure 9) (IRENA, 2021a). When it comes to renewable power, which is identified as one of the major avenues for achieving the energy transition, the required annual investment amounts to nearly USD 1 trillion for the 2021–2050 period (IRENA, 2021a), more than triple the renewable energy power investment of the USD 300 billion estimated for 2020. The investments presented in Figure 9 represent the needs for installing the technology and exclude the investments required to create an enabling environment for the transition (e.g. capacity building and the implementation of structural change and just transition policies).
investments of more than USD 24 trillion must be redirected from fossil fuels towards energy transition technologies. Countries would be well advised to begin this capital reallocation rapidly, as delaying action would cause fossil fuel stranded assets to nearly double, from an estimated USD 3.3 trillion to an alarming USD 6.5 trillion by 2050 In addition, support is needed to ensure a just transition, including the reallocation and creation of new jobs and services (IRENA, 2021a). Box 5 discusses the Just Transition Partnership for the transition from coal in South Africa.
and national climate change channels. Multilateral channels include entities such as GCF and GEF, as well the Climate Investment Funds (CIFs) administered by the World Bank, and multilateral development banks. Bilateral climate flows mostly come through development agencies and bilateral climate funds (such as Germany’s International Klimaschutz initiative [climate protection initiative, IKI] or the UK’s International Climate Finance [ICF]). Regional and national channels include a variety of funds such as Africa Risk Capacity (ARC), Brazil’s Amazon Fund, and the Indonesian Climate Change Trust Fund, to name a few (Climate Funds Update, 2021; Independent Expert Group on Climate Finance, 2020). Owing to its large and decentralised scope, climate finance flows are difficult to estimate and monitor – this is also due to the fact that there is no universal agreement on the definition of ‘climate finance’ nor are there consistent accounting rules to track such flows (Independent Expert Group on Climate Finance, 2020).
ANNEX 1. Highest CO2 emitting countries and regions and level of ambition in NDCs
Although ambitions in the Nationally Determined Contributions (NDCs) were raised, more needs to be done to put us on the path to keep the rise in global temperature to below 1.5°C. Almost all countries have ratified the Paris Agreement and all Parties have now submitted an NDC. If fully implemented, the original NDCs would have only helped limit global temperature rise to 2.8°C above pre-industrial levels by the end of this century, calling for more ambitious NDCs. As of mid-November 2021, 91 Parties – accounting for almost 64% of global greenhouse gas (GHG) emissions – had submitted NDCs that are more ambitious than the original ones and 16 Parties – accounting for 3% of global emissions – have expressed their intention to submit an updated NDC. However, even if all countries implement their latest NDCs, the global GHG emission level in 2030 is expected to be 13.7% above 2010 levels, which could result in a temperature rise of 2.7°C by the end of the century. At the same time, countries are increasingly making net zero commitments by 2050. Together with the new and updated NDCs, current and announced net zero pledges are projected to reduce emissions by approximately 20% by 2030 compared to the business as usual before the first NDCs, with the potential to limit warming to 2.1°C. However, this is still well above the 1.5 °C goal. Another positive trend is that more than 100 countries are promising to cut emissions of methane by 30% by 2030. These pledges, combined with the NDCs and net zero targets, have been found by the International Energy Agency to be sufficient to hold the rise in global temperatures to 1.8°C by the end of the century.
Africa is a continent rich in land, water and energy resources, with a young and fast-growing population. Already the world’s youngest continent, it is expected to grow to nearly 2.5 billion people by 2050, 80% of them in Sub-Saharan Africa (UNPD, 2019). Levels of human and economic development differ widely across the continent, but it is clear that the opportunities the continent offers are vast. Energy plays a fundamental role in Africa’s development pathway, and improving livelihoods and access to opportunities will depend crucially on the expansion of access to reliable and affordable and sustainable energy. This is also in view of the expectedly vast impact of climate change on the African continent, the effects of which are already beginning to be felt right now, and in view of the enormous potential for industrial development, job creation and environmental management that more widespread access to sustainable energy sources brings. The African Union’s Agenda 2063 clearly establishes the links between energy and industrialisation (AUC, 2015). However, access to reliable electricity and clean, modern cooking in Africa remains far behind most other parts of the world. With an electrification rate of 46%, 570 million people in 2019 were still without access to electricity in Sub-Saharan Africa, while only 16% had access to clean cooking (IEA, IRENA et al., 2021). This situation reinforces socio-economic inequalities and impedes progress in widening access to basic health services, education, and modern machinery and technology – thus, ultimately, to socioeconomic opportunities.
Africa’s economies are widely diverse in their growth trajectories. Many expanded until the mid 2010s on the back of strong international commodity markets, but the pace slowed afterwards, first as a result of falling commodity prices after 2014, and then because of the COVID-19 crisis. Because Africa remains highly dependent on commodity exports, the region’s economies rise and fall with international movements in commodity price. Fuelled mostly by the commodity price boom of the 2000s and early 2010s, average gross domestic product (GDP) per capita (in constant 2010 USD) grew at an annual rate of 2.3% between 2000 and 2014 (see Figure 1.1). In some countries the expansion of manufacturing capacity reinforced this growth. One of these was Ethiopia, which has been one of the fastest-growing economies in the world, with a sevenfold increase of GDP per capita between 2000 and 2019. However, persistent commodity dependence and an overall lack of economic diversification has now reversed the earlier trend, as shown in Figure 1.1. Between 2014 and 2019, when commodity prices were low, per capita GDP stagnated (with an average annual rate of -0.01%, and even -0.22% for the 2014 2020 period).
Expanding the manufacturing sector is essential for diversifying economies, increasing productivity, promoting innovation and technological advances, and creating jobs (UNIDO, 2020a). However, following significant progress in the 2000s, a large majority of African countries saw their per capita manufacturing value added (MVA) rates stagnate in the 2014 2019 period; the rate even decreased in Southern Africa.3 In 2019, Africa’s MVA per capita (of about USD 207) was about eight times lower than the world average (USD 1 683) (see Figure 1.2). Even in the African countries with relatively large manufacturing sectors, such as Ethiopia and the United Republic of Tanzania, value-added and productivity levels remain relatively low (Rodrik, 2021). This is because Africa’s economic growth and employment generation have relied heavily on low-value-added sectors, such as raw commodity exports (fossil fuels, mining and agriculture) (ILO, 2019).
HUMAN DEVELOPMENT AND THE SUSTAINABLE DEVELOPMENT GOALS As noted, Africa has made uneven progress in socioeconomic development over the past decade. The continent’s score on the HDI rose from 0.45 in 2000 to 0.57 in 2019, implying overall positive progress (see Figure 1.7e), including on SDGs such as education and poverty alleviation (IEA, IRENA et al., 2021). When adjusted for its environmental footprint, Africa’s HDI does not fall as dramatically as in other world regions (due to the continent’s low carbon footprint overall) but remains below the planetary pressure– adjusted HDI of other regions (see Figure 1.7g).9 Still, the fight against poverty and hunger and for access to education, health care and economic opportunity remains one a fundamental challenge in many parts of Africa. With Africa containing 33 of the world’s 47 least-developed countries (in the UN classification) and more than half of those earning less than USD 1.90 (purchasing power parity) per day, the scope of the challenge is clear. (Purchasing power parity figures are presented in the annex to this chapter.)
AFRICA’S ENERGY LANDSCAPE
As mentioned in the previous chapter, Africa’s energy landscape is characterised by a rich, highly diverse range of energy resources, from hydrocarbons to renewable energy. Home to a fifth of the world’s population (around 1.3 billion people), Africa accounts for just 6% of global energy demand and 3% of electricity demand (IEA, IRENA et al., 2021). Significant gaps remain in access to modern energy, especially in rural areas where less than 27% of the population have access; and, except for the export of raw materials, industrialisation and agricultural productivity lag. These factors that have shaped Africa’s energy landscape. This picture will undoubtedly change over the coming decades as the continent grows and develops, increasing energy needs. This chapter provides a panoramic view of the status of the energy sector on the African continent. It covers primary energy supply, final energy consumption, the electricity sector, the status of renewable energy and access to energy across the region.
Hydropower Hydropower has been used in Africa for many decades owing to the presence of the continent’s large rivers, which have an average annual discharge of 17.7 cubic metres per second (Hoes, 2014). At almost 34 GW capacity by the end of 2020, hydropower is also the renewable energy source used most extensively for power generation. As of 2020, Ethiopia, Angola and South Africa hold Africa’s largest hydropower capacity (Figure 2.6). Ethiopia is building yet another mega-dam, the 6 GW Grand Ethiopian Renaissance Dam, which will be the largest in Africa in terms of capacity when it enters into operation in 2022. In several African countries with large rivers crossing through their territory, hydropower accounts for half or more of electricity generation capacity. Chief among these countries are Angola, the Democratic Republic of the Congo, Ethiopia, Gabon, Guinea and Uganda (IRENA, 2021a).
At present, large-scale hydropower is the largest source of renewable electricity in Africa, with sizeable unexploited potential (Figure 2.7). Africa’s largest hydropower producers are Ethiopia, Angola, South Africa, Egypt, the Democratic Republic of the Congo, Zambia, Mozambique, Nigeria, the Sudan, Morocco and Ghana. The Delft University of Technology estimates the continent’s unexploited hydropower potential to be 1 753 GW (Hoes, 2014), with Angola, the Democratic Republic of the Congo, Ethiopia, Madagascar, Mozambique and Zambia leading.
NORTH AFRICA North Africa is the African continent’s largest energy market. The region has a distinct energy landscape that, like its socio-economic development status, sets it apart from Sub-Saharan Africa. With the exception of the Sudan, North Africa is made up of middleincome countries. Algeria, Libya, Egypt and the Sudan are endowed with significant hydrocarbon resources and have been long-standing exporters of oil and natural gas (Figure 2.20).
CENTRAL AFRICA Central Africa is Africa’s smallest energy market. Access to electricity has expanded much more slowly here than in other parts of Africa, with 2019 access to electricity at a low 32%, and clean cooking at 17%. The Central African Republic and Chad have some of Africa’s lowest rates of access. Owing to its large population, the Democratic Republic of the Congo has Africa’s second-largest population without access to electricity, behind Nigeria. Angola is Africa’s second-largest producer of crude oil and has Africa’s third-largest hydropower generation capacity. Even so, as of 2019, Angola had no national electricity grid owing to damage to transmission and distribution networks during the 27-year civil war from 1975 to 2002 (EIA, 2019). By contrast, Gabon boasts one of Sub-Saharan Africa’s highest rates of access to modern energy; São Tomé and Príncipe has a high rate of access to electricity (Figure 2.44).
RENEWABLE ENERGY FINANCE IN AFRICA
Over the past two decades, investment in renewable energy grew rapidly. Yet of the USD 2.8 trillion invested globally between 2000 and 2020, only 2% went to Africa (Table 3.1), despite the continent’s enormous potential to generate energy from renewable sources and its huge need to bring modern energy services to the billions of people still lacking access to electricity and clean cooking (see Chapter 6 on access). The COVID-19 pandemic could further widen the gaps in investment and access by slowing or even partially reversing the limited progress made to date. Going forward, unprecedented levels of investment will be required to put Africa on a path toward achieving the Sustainable Development Goals (SDGs), particularly SDG 7 on access to affordable, reliable, sustainable and modern energy for all. This chapter surveys trends in renewable energy investment in Africa, sources of financing in the five regions, and measures and tools to manage risks and attract further investments in all end uses.
Investments in 2020 also varied by type of financing. Most of the 2019-2020 drop came in the form of a decline in term loans, which shrank from USD 2.2 billion to USD 1 billion, while balance sheet financing rose by two-thirds, from USD 980 million to USD 1.6 billion. Wide fluctuations are not uncommon, but this was the first time since 2009 that term loans fell below balance sheet financing. The pandemic also led to greater interest in clean energy investments, as oil-exporting economies were hit hard, particularly Libya, Equatorial Guinea, Algeria, Angola and Nigeria. In 2020, low demand for energy commodities and low oil prices cut export revenues and fuelled large fiscal deficits in many countries in the continent (UNECA, 2020). Expanding their clean energy investment portfolios could help oil exporters hedge their risks against fossil fuels, creating opportunities for economic growth and jobs in the short run while safeguarding long-term climate interests globally.
In the 2010-2019 period, Central Africa received a total of USD 14.6 billion of which only 26% went into renewables, chiefly hydropower. Fossil fuel investments continued to dominate, although almost all of the USD 1.2 billion invested in 2017-2019 went to hydropower and solar. Cameroon has led the way in this regard, followed by smaller investments in countries such as the Central African Republic (the). In Southern Africa, funding from public sources has grown, especially within the last five years. In the 2010-2019 period, the region received USD 17 billion, of which only USD 7.5 billion (44%) went into renewables, primarily hydropower (19%) and solar (14%). The investments were concentrated in four countries: South Africa, Zambia, Mozambique and Zimbabwe. Except for Zambia, the same countries also led in fossil fuel investments.
GET FiT The Global Energy Transfer Feed-in Tariff (GET FiT) programme implemented a hybrid FiT-auction programme in Uganda in 2014 – leading to more than 20 MW of solar PV capacity (USD 164/MWh) – as well as a solar PV auction in Zambia (120 MW; USD 39 – 47/MWh). The GET FiT programme was designed by Deutsche Bank in 2010 and its initial focus was to address primarily the investment gap between renewables and conventional energy sources. As prices of renewables (particularly solar PV and wind) started declining, the GET FiT programme shifted emphasis to technical assistance. As such, it combined technical assistance (including developing standardised, bankable documentation), viability gap funding (premium payments, financed by the United Kingdom, Norway, Germany and the European Commission) and project de-risking through the provision of liquidity and termination support.
Private investments came mainly in the form of private equity or venture capital, with just one infrastructure fund. Over 2010-2020, these investors committed USD 467 million, or 44% of total private investment in off-grid renewable energy, with shares slightly increasing over time. This is not surprising, given the appetite of equity and venture capital investors for start-ups with limited track record but high growth potential (IRENA and CPI, 2020). Institutional investors were the second-largest provider of capital in the sector, with USD 341 million committed in the same period. This group of investors consisted almost exclusively of foundations (e.g. Untours, David and Lucille Packard, Rockefeller) because philanthropies have a stronger interest in the social and environmental impacts of their portfolios than do other institutional investors (e.g. pension funds, insurance companies and sovereign wealth funds).
POLICY FRAMEWORK FOR THE ENERGY TRANSITION
Africa has vast if untapped renewable energy sources. By harnessing these resources, the continent could leapfrog technology stages to create an energy system based on renewables that covers all sectors and end uses. Yet the policies and measures driving investment have for the most part focused on the power sector and rural access – electrification and clean cooking. An energy system based on renewable energy could support sustainable development, industrialisation and economic growth. To that end, a set of targeted polices and measures is needed.
Africa’s deployment policies have focused on power, with less attention to transport and heating and cooling, even as gaps in access to cooling continue to widen, especially for the rural and urban poor (Box 4.5). In 2020, 40 African countries had regulatory and pricing policies for renewables in the power sector, compared with only 7 countries with renewable transport fuel obligations or mandates, and 2 countries with renewable heat obligations – reflecting global trends (REN21, 2021b). The power sector enjoys widespread global attention; as a mature sector, its technologies are decreasing in cost. By 2020, new solar and wind projects were undercutting even the cheapest and least sustainable of existing coal-fired power plants (IRENA, 2021g). Although the focus on power aligns with IRENA’s vision of a future energy system where electricity accounts for more than half of energy consumption by 2050 (IRENA, 2021e), policies that support the direct use of renewables for heating and cooling and transport are needed to achieve industrialisation and development goals on the continent, since electricity cannot cover all end uses.
Policies for the direct use of renewables: Heating and cooling and transport Heating and cooling In the heating and cooling sector, African policies are focused on clean cooking and water heating. To take full advantage of its vast potential in solar, geothermal and bioenergy resources, Africa will need to do much more so that it can fuel productive uses such as agriculture and industrial processes. Policies to promote solar water heating are common in East Africa (Kenya, Mauritius and Rwanda), North Africa (Morocco, Tunisia, Egypt and Libya) and Southern Africa (Zimbabwe, South Africa and Eswatini). Typically, these policies offer subsidies to support SWHs; Tunisia’s PROSOL programme was more comprehensive, however. Consumers could purchase SWHs at lower up-front costs through investment subsidies on a five-year loan. Working alongside banks, the programme reduced risks by making the electricity utility the debt collector and increasing the supply of finance available for the systems (Innovation for Sustainable Development Network, 2019). South Africa’s state-owned utility, Eskom, implemented a SWH rebate programme in two phases, 2008-2013 and 2010-2015. In 2011, Rwanda rolled out its flagship programme, SolaRwanda, which provided grants and loans for residential SWHs. By 2018, 3 400 units had been installed (Solar Thermal World, 2018).
INTEGRATING POLICIES Renewable energy sources and their integration are central in the global energy transition. Secure supply by power grids requires a continuous balancing of supply and demand. Yet the presence of VRE like solar and wind power, whose feed-in depends on meteorological conditions like solar irradiation and wind speed, can pose challenges to grid operation. Given the relatively low base of installed capacity in Africa and the continent’s steep growth in demand, many African countries face a dual challenge: growing renewables while growing the system itself. The continent has a unique opportunity to design power systems able to accommodate high shares of variable renewables (Sterl, 2021). The integration of renewables can be facilitated through the formation of power pools in Africa which provide a framework for regional and cross-national planning.
SOCIO-ECONOMIC IMPACTS OF THE ENERGY TRANSITION IN AFRICA
The energy transition, with its systematic shift to renewable energy, holds vast potential to improve livelihoods across Africa in ways that transcend purely economic benefits. These improvements loom large for a continent that, despite its minimal emissions of greenhouse gases, is vulnerable to the depredations of climate change.1 These effects may include disruptions to the continent’s farming and agricultural systems, already strained by limited water availability, and to health systems (Niang et al., 2014). Disruptions may also extend to modern energy in parts of Africa (Chapter 2), to livelihoods and to cultural identity. Climate change also threatens global commodity markets and supply chains as the energy transition, vital for most of the continent, ramps up.
IMPACTS ON GDP UNDER 1.5-S This section presents energy transition impacts on aggregate economic activity (as measured by GDP) in Africa and its regions. These results are reviewed at the end of the section in light of the climate change damages wrought on the economy under both PES and 1.5-S. The energy transition under IRENA’s 1.5-S pathway boosts Africa’s GDP throughout the entire outlook period up to 2050, compared with PES. On average, GDP is 7.5% higher in the first decade, and 6.4% higher over the nearly three decades until 2050. Figure 5.2 shows relative differences between the scenarios, in percentages. The relative difference for total GDP, for instance, in the year 2030 means that the energy transition under 1.5-S yields a GDP 5.9% higher in that year than under PES.
GDP impacts by sector The energy transition can contribute to diversifying economies, by boosting demand for new product ranges and services, and promoting innovation in new technologies and knowledge-based products. African economies can leverage on domestic strengths, increasingly addressing the value chain of manufacturing in domestic industrialisation. Usingthe energy transition as a boost to more diversified economies across Africa will require a variety of skills, developed through more and better education and training opportunities.
Figure 5.3 shows the difference between the scenarios in economic activity by sector for selected years in Africa. Manufacturing and engineering-related economic activities gain from the energy transition, and this effect increases over time. Additional output needs additional intermediate inputs for production and hence services, retail, and transport also gain. By contrast, fossil fuel industries (coal, oil and natural gas) stand to lose under the energy transition, as do respective utilities. Since 1.5-S is based on a high level of electrification throughout the economy, electricity suppliers also gain. It should be noted, though, that reaching 100% energy access often involves off-grid solutions, which do not fall under this category. The difference in output in the electricity sector between 1.5-S and PES is therefore slightly underestimated in Figure 5.3.
Climate change will damage aggregate economic activity in both the 1.5°C Scenario and PES, but to a lesser degree according to their respective cumulative CO2 emissions during this century. Climate damages will vary across regions. Figure 5.6 presents how the difference in GDP develops over time for PES, globally, in Africa and for the individual regions. Climate damages in Africa and its regions are expected to be greater than the global average. Extensive climate damages can be expected under PES. By 2100 it could reduce GDP by 55%-65% (compared to GDP estimates that do not account for climate damages), implying that unmitigated climate change will have a highly damaging impact on the African continent.
TACKLING THE ENERGY ACCESS DEFICIT IN AFRICA
A key pillar of Africa’s energy future involves expanding access to reliable, affordable and sufficient electricity and clean cooking fuels and technologies for the hundreds of millions of people who presently lack it. An estimated 592 million Africans were living without electricity in 2019; 927 million had no access to clean cooking fuels and technologies (IEA, IRENA, et al., 2021). The access deficit is particularly acute in rural areas of Sub-Saharan Africa, with average rates of 25% for electricity and only 4% for clean cooking. Of the world’s 3.5 billion people living without reliable access to electricity, the majority are found in SubSaharan Africa (Ayaburi et al., 2020). The full impact of the COVID-19 pandemic on access is not yet known, but it has been estimated that in Sub-Saharan Africa 17 million people lost the ability to afford an essential bundle of electricity services, while nearly 25 million might be at risk of reverting to traditional fuels and technologies, such as candles and kerosene for lighting and wood for cooking (IEA, IRENA, et al., 2021; IEA, 2020b). Even before COVID-19, the achievement of universal access by 2030 – as targeted by Sustainable Development Goal (SDG) 7.1 – had become increasingly unlikely. The energy access trajectory presents a bleak picture for the African continent, as population growth and slow progress over the past decade has resulted in limited reductions in the absolute numbers of people without access. By 2030, around 560 million and 1 billion people in Sub-Saharan Africa are still expected to be without electricity and clean cooking fuel access, respectively (IEA, 2020c).
RAISING ACCESS TO ELECTRICITY USING DISTRIBUTED RENEWABLES Distributed renewable energy solutions play a steadily growing role in expanding electricity access in off-grid areas and strengthening supply in already connected areas in Africa.2 In the off-grid context, renewables-based stand-alone systems (e.g. solar lights, home systems) and mini-grids have spread in recent years, driven by improving technology, falling costs and favourable policy and regulatory environments. With the active participation of the private sector and facilitated by context-specific local conditions (e.g. mobile payments in East Africa), these solutions have quickly come to complement electrification through grid extension. At the same time, grid-interactive distributed renewables are also increasingly being considered to raise the quality and reliability of supply in connected areas, particularly for commercial and industrial consumers.
also be found in the value chains of oil, poultry, dairy and coffee. In Sierra Leone, for example, a 250-kW hydro-based mini-grid powers a palm oil pressing plant, which also improves the financial case for the mini-grid, as the plant buys a third of the electricity generated (Power for All, 2020). In Kenya, pilot projects have been launched to use geothermal heat to pasteurise milk, heat aquaculture ponds and dry grain. Substantial potential exists in meat and honey processing, as well, and in postharvest crop preservation (IRENA, 2019c).
FOREWORD The accelerating deployment of renewables has set in motion a global energy transformation with farreaching geopolitical implications. The report “A New World”, released in 2019 by IRENA’s Global Commission on the Geopolitics of the Energy Transformation, was the first foray into this area. It highlighted how the advent of a new energy age would reshape relations between states and communities and bring about a “new world” of power, security, energy independence and prosperity. Given the fast pace of change, it is critical to monitor the geopolitical drivers and implications of the transition, stay abreast of developments and play an active role in shaping the future. In 2020, the IRENA Assembly requested the Agency to advance this work under the Collaborative Framework* on the Geopolitics of the Energy Transformation. Hydrogen was identified as a prominent area for further analysis, given the recent surge of interest. Several times in the past, hydrogen attracted much attention but remained a niche in the global energy discourse. Today, the policy focus is unprecendented, given its central role for decarbonisation of harder-to-abate sectors.
The hydrogen business will be more competitive and less lucrative than oil and gas. Clean hydrogen will not generate returns comparable to those of oil and gas today. Hydrogen is a conversion, not an extraction business, and has the potential to be produced competitively in many places. This will limit the possibilities of capturing economic rents akin to those generated by fossil fuels, which today account for some 2% of global GDP. Moreover, as the costs of green hydrogen fall, new and diverse participants will enter the market,making hydrogen even more competitive.
Hydrogen trade and investment flows will spawn new patterns of interdependence and bring shifts in bilateral relations. A fast-growing array of bilateral deals indicates that these will be different from the hydrocarbon-based energy relationships of the 20th century. More than 30 countries and regions have hydrogen strategies that include import or export plans, indicating that cross-border hydrogen trade is set to grow considerably. Countries that have not traditionally traded energy are establishing bilateral relations centering on hydrogen-related technologies and molecules. As economic ties between countries change, so might their political dynamics.
THE ROLE OF HYDROGEN IN THE ENERGY TRANSITION
WHAT IS HYDROGEN? Hydrogen is the oldest, lightest and most abundant element in the universe. It is naturally present in many compounds, including water and fossil fuels. Hydrogen gas is used mainly as a feedstock for the (petro)chemical industry: crude oil refining, ammonia synthesis (primarily for fertiliser production) and methanol production for a wide variety of products (including plastics). Around 120 million tonnes of hydrogen is produced globally, twothirds of which is pure hydrogen and one-third of which is a mixture with other gases (IEA, 2019a). China is the world’s largest producer and consumer of hydrogen (Figure 2.1). It produces almost 24 million tonnes of pure hydrogen per year, accounting for nearly one-third of dedicated global production. Hydrogen can also be used as a fuel. When burned, it can generate heat of more than 1 000°C without emitting CO2. Further, hydrogen can also be used in fuel cells, where it chemically reacts with oxygen to produce electricity without emitting any pollutants or greenhouse gases. The only by-product of this chemical reaction is water vapour.
MAIN PRODUCTION PATHWAYS Despite its abundance on Earth, hydrogen does not exist naturally in its pure form in large quantities. There are no vast deposits of hydrogen in the ground that can be extracted. Hydrogen is found almost exclusively in compounds, notably water molecules (hydrogen and oxygen) and fossil fuels (hydrogen and carbon). Hydrogen can be released from these compounds, but doing so requires energy. A colour-code system is commonly used to refer to different hydrogen production methods (Figure 2.2). Most hydrogen today is “grey” hydrogen, which is produced using fossil fuels, notably through steam methane reforming of natural gas or gasification of coal.7 These fossil fuel-based production methods, which account for 95% of today’s hydrogen supply, result in a substantial CO2 footprint and are not compatible with moving towards net zero emissions.
Two main routes are under consideration to replace grey hydrogen with a clean form of production: green and blue hydrogen. Green hydrogen production is fully consistent with the net zero route. It relies on technologies that have long been well known, based on water electrolysis (Box 2.1) powered by renewable electricity. Currently, hydrogen production from renewable sources is limited, but this is set to change with the global focus on its potential. Blue hydrogen is produced from fossil fuels with CCS. Retrofitting CCS to grey hydrogen production facilities would allow continued use of these assets with lower greenhouse gas emissions. However, blue hydrogen relies on fossil gas, which brings risks of upstream or midstream leakages of methane, a much more potent greenhouse gas than CO2. Blue hydrogen can thus yield very low greenhouse gas emissions, only if methane leakage emissions do not exceed 0.2%,8 with close to 100% carbon capture. Such rates are still to be demonstrated at scale (Bauer et al., 2021; Howarth and Jacobson, 2021; IEA, 2021b; IRENA, 2020b; Saunois et al., 2016).
Decarbonisation strategies require careful management to ensure that the technologies and solutions selected are most efficiently deployed. Thus, the wide array of options calls for identification of uses in which hydrogen can provide the most value. Its production, transport and conversion require energy, raising overall demand. Indiscriminate use can slow the energy transition, also diluting the decarbonisation efforts of the power generation sector. Hydrogen is therefore best reserved for the uses that currently have no viable alternative. Figure 2.4 compares possible end uses based on the size of application and the maturity of hydrogen solutions compared with electricity-based ones. Policy attention should be given to the more mature and centralised hydrogen solutions. This attention can involve dedicated research, planning and supporting policies (IRENA, forthcoming-b). Making the shift to a truly sustainable economy is not simply about switching energy sources and keeping the current energy system; more efficient, just and equitable ways of using energy must be developed. Doing so involves reducing unnecessary energy consumption across many final uses and changing the current economic system, which is based on continuously increasing consumption. In heavy industry, for example, 40% of CO2 emissions could be saved by reusing steel, aluminium and plastics more effectively (Lovins, 2021a). Another example would be a modal shift from short-distance flights to electrified trains, where possible, to reduce demand.
REDRAWING THE GEOPOLITICAL MAP
Hydrogen could alter the global balance of power and bring about shifts in the relative positioning of states and regions in the international system. This chapter identifies front-runners in terms of policy, future hydrogen exporters and emerging technology leaders. It also discusses the position of fossil-fuel producer countries, which could use hydrogen to hedge against some of the transition risks as the world moves towards net zero economies.
POLICY FRONT-RUNNERS AND LEADING MARKETS A growing number of countries and companies are engaged in intense competition for leadership in clean hydrogen technologies. This section discusses three metrics with which to identify policy front-runners and potential leading markets: national hydrogen strategies, investments and projects on the ground. In 2017, just one country (Japan) had a national hydrogen strategy. Today, more than 30 countries have developed or are preparing hydrogen strategies (Figure 3.1), indicating growing interest in developing clean hydrogen value chains.
There is considerable variation in the scope and detail of these strategies. Box 3.1 describes the vision and focus of selected countries and regions that could become early leading markets for hydrogen because of their market size and/or ambitious hydrogen plans. These large markets are well positioned to set standards and other rules of the game if their strategies and plans are operationalised.
The COVID-19 pandemic has heated up the race for leadership in clean hydrogen, as many countries recognise the importance of hydrogen for addressing the twin challenges of climate change and economic recovery from COVID-19. Significant shares of countries’ stimulus funds have been earmarked for hydrogen projects, bringing hydrogen into the realm of geoeconomic competition. By early August 2021, governments had allocated at least USD 65 billion in targeted support for clean hydrogen over the next decade, with France, Germany and Japan making the most significant commitments (Figure 3.2). These amounts are sizeable, but they pale in comparison with energy sector subsidies, which amounted to USD 634 billion in 2017, 70% of which supported fossil fuels (IRENA 2020c).
On the back of these national plans and support schemes, investment in clean hydrogen has taken off in recent years (Figure 3.3). As of November 2021, global announcements of hydrogen projects by 2030 add up to USD 160 billion of investment, with half of the investments being planned for green hydrogen production using renewable energy sources and electrolysis (Hydrogen Council, 2021).
The pipeline of announced electrolyser projects reached over 260 GW globally by October 2021, and, if implemented, would bring an additional 475 GW of wind and solar PV capacity online by 2030 (IEA 2021d).15 Although this is a dramatic increase from the 0.3 GW of electrolysis that was installed in 2020, it is far from the 160 GW that must be installed on average every year through 2050 to meet the 1.5°C goal (IRENA, 2021a).
A NEW CLASS OF ENERGY EXPORTERS Countries and regions with high renewable potential and a low levelised cost of electricity can use their resources to become major producers of green hydrogen. The ability of different regions to produce large volumes of low-cost green hydrogen varies widely. Africa, the Americas, the Middle East and Oceania are the regions with the highest technical potential; Europe, Northeast Asia and Southeast Asia have fewer resources for producing green hydrogen (Figure 3.4). Countries’ technical renewable potential is not the only factor determining how likely they are to become major producers of green hydrogen. Many other factors come into play, including existing infrastructure and “soft factors” (e.g. government support, business friendliness, political stability) and the current energy mix and industry (e.g. renewable plans, potential demand for hydrogen).
One way to foresee future importers and exporters of green hydrogen is to compare their domestic production potential with their expected hydrogen demand by 2050, and the cost of import.16 Three groups of countries can be identified. The first group includes countries with low cost green hydrogen production that could develop into exporters. They can leverage their renewable markets to attract investments in green hydrogen production. Australia, Chile, Morocco and Spain are among such net hydrogen exporters. The second group includes countries that can become self-sufficient in green hydrogen. These countries have sufficient production potential to cater to their own needs without resorting to imports. It includes China and the United States. The third group includes countries that will need imports to satisfy domestic demand, including Japan, Republic of Korea, and parts of Europe and Latin America.
TRADE, SECURITY, AND INTERDEPENDENCE
As hydrogen becomes an internationally traded commodity, the hydrogen sector will attract growing sums of international investment. Along with these new trade and investment flows will come patterns of global interdependence different from the hydrocarbon-based energy relationships of the 20th century. The shift will change the geography of energy trade. Countries that have not previously traded energy with each other have an opportunity to establish bilateral energy relations centred on hydrogen-related technologies and molecules. As economic relations between countries change, so might their political relations. The advent of an international hydrogen market could well reshape foreign policy and bring shifts in bilateral relations and alliances (Figure 4.1).
NEW GEOGRAPHY OF TRADE The impact of clean hydrogen on global energy trade needs to be assessed in the context of the broader energy transformation. The shift from fossil fuels to renewables will fundamentally alter the nature and geography of the energy trade. Trade in energy resources will gradually turn to trade in energy technologies and related components and raw materials (IRENA, 2019a). As a result, the value26 of trade in fossil fuels will decline and that in electricity, hydrogen and hydrogen-rich fuels will rise (Figure 4.2).
Energy relations are likely to be regionalised, thereby transforming the geopolitical map. Renewables could be deployed in every country, with renewable electricity exported to neighbouring countries via transmission cables. In addition, clean hydrogen could facilitate the transport of renewable energy over long distances via pipelines and shipping, unlocking previously untapped renewable resources in remote locations. However, driven by transport costs, a dual market for hydrogen is likely to emerge: a regional market, traded through pipelines, and a global market for ammonia, methanol, and other liquid fuels. In other words, hydrogen may well end up being traded in a market that is more diverse and regionalised than oil and gas markets.
Geopolitical motives loom large in these discussions. Countries have an incentive to set standards to maintain their competitive advantages. For instance, hydrogen certification schemes that cover only emissions generated during production would exclude those that arise during transport and would likely be favoured by producers located far from consumer markets (White et al., 2021). Similarly, countries with large natural gas reserves and transportation systems might be more lenient towards greenhouse gas emission thresholds that favour the blue production pathway or that focus solely on carbon rather than methane emissions. Even if methane emissions are included, countries could influence the methodology or values used to measure them. For example, gas producers could self-report methane emissions along with their production, which could lead to underreporting (Piria et al., 2021).
THE ROOT CAUSES OF GEOPOLITICAL INSTABILITY – AND HYDROGEN’S ROLE IN ADDRESSING THEM
In today’s interconnected world, accounts of geopolitical change must grapple with the broad and multidimensional nature of global threats and vulnerabilities. The concept of “human security” is often used to describe the root causes of geopolitical instability. Looking beyond military threats to state security, this concept expands the security agenda to include non-traditional threats such as climate change, poverty and disease, which can undermine peace and stability within and between countries. The United Nations General Assembly (2012) has endorsed this principle, which informs the United Nations’ work in areas ranging from peacebuilding to humanitarian assistance and sustainable development. The 17 Sustainable Development Goals (SDGs) reflect the multidimensional nature of human security. Depending on how it is developed, hydrogen could have both positive and negative effects on sustainable development outcomes (Figure 5.1).
SOCIO-POLITICAL TRANSFORMATIONS The global energy transition has social and economic consequences that could have geopolitical ripple effects. To make the energy transition fair and inclusive, policy makers must pay attention to its impact on jobs and industrial development, as well as its inclusiveness. On the one hand, IRENA estimates that electrolysers alone could directly spur the creation of 2 million jobs worldwide from 2030, out of a workforce that is expected to number 137 million by that time (IRENA and ILO, 2021). On the other, hydrogen could be disruptive for certain industries by raising the risk of stranded assets. Blue hydrogen is sometimes portrayed as a safe bet, because it allows producer countries to monetise natural gas resources and pipelines that might otherwise become stranded. But the expected cost reduction in green hydrogen coupled with stricter climate mitigation policies means that investments in supply chains based on fossil fuels (blue or grey) – especially assets expected to be in operation for many years – may end up stranded.
Another risk of asset stranding looms at the end-use segment of the hydrogen value chain. Clean hydrogen is expected to play an important role in heavy industries such as steel, cement and chemicals. Existing plants in these sectors have typical lifetimes of 30–40 years, with most undergoing significant refurbishment during their lifetimes (IRENA, 2020b). If new plants and assets are built to operate on fossil fuels, they will lock in billions of tonnes of greenhouse gas emissions and risk becoming stranded in the journey to net zero. With few investment cycles left before 2050, it will be critical to make these plants future-proof. Collaboration between and among countries will be crucial for the timely dissemination of clean technologies, especially for heavy industry and transport. Assisting developing countries in deploying hydrogen projects could help lock out, rather than lock in, fossil fuels, for example. For their part, industrial countries may be better off replacing ageing infrastructure with net zero compatible solutions designed for the economy of the future.
POLICY CONSIDERATIONS AND THE WAY FORWARD
The Global Commission on the Geopolitics of Energy Transformation stated in its 2019 report that the world to emerge from the renewable energy transition will be very different from the one built on fossil fuels (IRENA, 2019a). It also noted that the precise scope and pace of the energy transformation could not be predicted. The rise of hydrogen exemplifies this point. A few years ago, hydrogen was considered niche in the global energy discourse. Today, it is a central focus of decarbonisation strategies for harder-to-abate sectors, with a growing number of countries and industries betting on its widespread use.
Governments have a unique opportunity today to shape the advent of hydrogen, avoid the flaws and inefficiencies of current systems, and influence geopolitical outcomes. It is evident that increased adoption of hydrogen technologies will disrupt certain economic and political alliances and partnerships. If pursued with due care and caution, this suite of energy technologies also offers the opportunity to demonstrate the positive forces of disruption, enhancing national and regional sovereignty, resilience, and co-operation. Experience from the use of fossil fuels may be instructive as the race for clean hydrogen accelerates. Policy makers can also draw early lessons from trailblazers in the hydrogen sector and replicate their successful practices. Above all, international co-operation will be essential to effectively navigate the unknowns, mitigate risks and overcome obstacles in the years ahead.