Global Energy Demand: How to Sustainably Respond to the Asian and African Challenges?

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Institut Montaigne

The annual report of the International Energy Agency (IEA, World Energy Outlook 2018 report), which analyzes the global energy market, was revealed in November 2018. The COP24 taking place in Katowice, Poland, is an opportunity to investigate the current state of energy demand, one of the key issues of the ecological transition.

According to the IEA, global energy demand is expected to boom by 2040, with a growth of more than 25%, driven by ever-increasing demand from developing countries. The institution estimates that investments worth €1,780 billion by 2040 will be necessary to supply sufficient energy, and to maintain the growth and development of these countries.

World primary energy consumption rose by 2.1% since 2016, and by 40% since 2000. According to the BP Statistical Review of World Energy, the mix is composed of 34.2% of oil, 27.6% of coal, 23.4% of natural gas, 6.8% of hydropower, 4.5% of nuclear and 3.5% of renewables. It is dominated by fossil fuels, a situation that has changed little over the past three decades, despite important investments in renewable energy.

The world is dominated by fossil fuels, a situation that has changed little over the past three decades, despite important investments in renewable energy.

This stagnation can be explained by the fact that various sources of energy, whether fossil or not, have all progressed. Oil consumption rose by 1.6%, natural gas rose by 3% (demand has tripled since 1973), coal by 1% (demand has doubled since 1973). Increase of demand was offset by 70% by the increase in fossil fuel consumption. Besides, renewable energy satisfied 25% of the rise in energy demand, in particularly in electricity generation sectors. The share of nuclear power in the global energy mix has increased by 3% in 2017, thus responding to the remaining rise of energy consumption.

The energy consumption of electricity, which now accounts for 19% of the global energy demand, is expected to increase by 60% and to account for almost 25% of this demand by 2040. Global production of electricity rose by 2.8% in 2017. 94% of this evolution comes from developing countries.

In light of this phenomenon, and because they are the two main continents most likely to shape the future of global energy, we are going to closely examine the cases of Asia and Africa. Asia is experiencing the strongest increase in global energy demand, along with a high growth rate. On the other hand, Africa has a high growth rate, yet its energy demand and infrastructures hardly reflect this growth. What are the main characteristics of these two continents? How are their energy markets structured? Are investments in infrastructure sufficient to respond to the challenges of tomorrow? And to meet the challenges of today's ecological transition?

The energy demand keeps growing stronger in Asia

Energy demand in Asia has and will continue to increase significantly in the coming years. This can partly be explained by the continent's strong economic growth, infrastructure development, population growth and the access to electricity of a new segment of the population. The Asian continent went from representing 18% of the world energy consumption in 1980 to 41% today, and will represent almost 50% in 2040.

Two thirds of the increase in global energy demand will come from this continent until 2040. 26% of this growth currently comes from India, 21% from China and 11% from Southeast Asia (ASEAN). Coal is the main primary energy in Asia. It represents 69% of energy consumption in India, 58% in China and 34% in ASEAN. This cheap energy remains crucial for this rapidly developing continent, despite the growth of renewable energy.

The Asian continent went from representing 18% of the world energy consumption in 1980 to 41% today, and will represent almost 50% in 2040.

India has planned to reduce its dependence on and its consumption of coal: its goal is for the latter to represent 43% of its energy mix by 2027. The government is investing massively in renewable energy. It aims for the latter’s share within the country’s energy mix to increase from 17.5% today to 44% in 2027, mainly thanks to a multi-billion dollar policy supporting solar energy. However, the challenge will be to adapt the country’s network to intermittent production of renewable energy, and to supply electricity to 1.6 billion people by 2040. In order to achieve this goal, the IEA believes that the country needs to have infrastructure equivalent to that of the European energy system.

China, which is experiencing serious public health problems in its urban areas because of coal externalities, is expected to reduce its coal consumption by 0.1% per year by 2022. This may seem weak, but it does nonetheless represent a trend reversal for the country. According to a recent American study, 500 000 Chinese (and 300 000 Indians) would die prematurely because of air pollution due to the use of coal. With a marked improvement in Chinese living standards, air quality is now one of the population’s top concerns, and a possible reason for social protest against the regime. Xi Jinping, General Secretary of the Central Committee of the Chinese Communist Party, said it was now one of the government's priorities.

ASEAN countries will experience an increase in coal consumption due to a strong demographic growth (+ 20% by 2040), even though the region’s population already comprises 640 million inhabitants. 150 million more people will live in urban areas. Economic growth (5.3% annual growth according to the IMF) will also give the entire population access to electricity. Today, 65 million people lack such access in ASEAN countries.

Climate change particularly impacts the Asian continent, which is struck by typhoons, floods, etc. Asia produces 2000 GW of energy through its operating coal plants. Last year, the use of coal increased by 4% in China, and 13% in India. Disconnection between markets and climate objectives is worrying given recent alarming reports like that of the IPCC.

Yet hope remains. India plans to generate 175 GW of renewable energy, and China wants to become the leading player in renewable energy, especially through solar and wind energy. According to 2018 BP Energy Outlook, the latter responded to 80% of the increase in its energy demand through renewable energy. These developments are not sufficient to achieve the climate goals set by the Paris Agreement, but actions can still be undertaken to tackle climate change. These issues are at the heart of the COP24 negotiations taking place in Katowice, Poland.

Population and energy boom in Africa: what to expect?

As in Asia, energy demand in Africa is rising and will keep doing so, although at a slower pace. According to the International Energy Agency’s report, in 2014, the sub-Saharan population accounted for 13% of the world’s population, but only for 4% of its energy demand. The same report, "Africa Energy Outlook", estimates that by 2040, the total energy demand in sub-Saharan Africa will grow by less than half of that in India, and less than 40% of that in China.A surprising forecast, given that the African population is expected to boom at a higher rate than that of China or India. According to the UN Department of Economic and Social Affairs (2017), it could reach 4.7 billion people in 2100, which amounts to 40% of the expected global population for that year (11 billion).

The main reason behind this seemingly low demand for energy is a slow economic growth (3.1% in 2018 and 3.7% in 2020, according to the World Bank’s predictions), which leaves 600 million people without any access to electricity today in Africa. This means that, unlike in Asia, the sub-Saharan continent’s main challenge is to supply enough energy to its ever-growing population, often via aging and mismanaged infrastructures, and in a context of slow modernization and chaotic urbanization. Indeed, the production of energy is well below demand. Added to this is the fact that energy supply is essential to economic development, and yet the lack of efficient infrastructures, specifically regarding access to power, hinders Africa’s economic development. There is, for instance, very little incentive for private companies to invest in this field.

It is however worth noting that South Africa represents 94% of the total African coal consumption.

Yet, African countries have rich energy resources. As of today, according to a report by the African Bank of Development and UN Environment, energy consumption in the whole of Africa - South Africa and Maghreb included - is dispatched as follows: oil (42%), gas (28%), coal (22%), hydro (6%), renewable energy (1%) and nuclear (1%).

It is however worth noting that South Africa represents 94% of the total African coal consumption. Increasing investments are being made in Africa in the energy sector, and two out of every three dollars invested since 2000 have been dedicated to the exportation of resources, rather than to supply within the continent (International Energy Agency, 2014).

Measures are currently being taken to improve both access to energy sources and its affordability, as both are inextricably linked. For instance, in sub-Saharan Africa, electrification efforts outpaced population growth for the first time in 2014, as shown in the World Energy Outlook 2017. Moreover, from 2000 to 2014, energy use rose by 45%. Yet the International Energy Agency forecasts that around 675 million people in Africa, 90% of whom living in sub-Saharan Africa, will have no access to electricity in 2030.

In this context, what kind of energy transition is to be expected in sub-Saharan Africa? In 2017, renewable energy such as hydropower, solar and non-traditional solid biomass accounted for less than 2% of sub-Saharan Africa’s energy mix (UN Economic Commission for Africa, February 2017). Solar energy, in particular, is expected to boom in the region. The reason for this is twofold: not only are the costs declining - production costs for solar panels have reached €70 to €80/MWh in 2018 - but the whole African continent benefits from an average of more than 320 days of bright sunlight per year.

In short, African countries will have to overcome institutional, financial and technical impediments to achieve an efficient energy transition, The latter would allow the continent to provide energy to its booming population. This is an achievable goal, encouraged by increasing foreign investments in renewable energies, as shown by a study from Havas Horizons.

Written by Clémence Alméras & Tennessee Petitjean