THIS COMMENTARY IS PUBLISHED BY FITCH SOLUTIONS COUNTRY RISK & INDUSTRY RESEARCH and is NOT a comment on Fitch Ratings' Credit Ratings. Any comments or data are solely derived from Fitch Solutions Country Risk & Industry Research and independent sources. Fitch Ratings analysts do not share data or information with Fitch Solutions Country Risk & Industry Research.
- Decarbonisation and energy security will dictate global power trends, with coal entering net decline and renewables growth accelerating.
- Gas market price volatility will drive new regions to accelerate the adoption of renewable power.
- Non-hydropower renewable growth will surge over the near term with growth led by Asia and Western Europe as energy security trends drive the sector forwards.
Decarbonisation and energy security will dictate global power trends, with coal entering net decline and renewables growth accelerating. We expect to see coal enter a net decline over the coming decade at an accelerating rate, with generation falling from 9814TWh over 2022 to 9750TWh by 2031. The coal sector’s growth will be limited to Asia with all other regions seeing net declines, as North America and Western Europe (NAWE) lead phases outs followed by Latin America. This decline is being driven by rising efforts to decarbonise the power sector amid the energy transition. We also highlight that in Europe rising carbon prices have accelerated the trend of phase-outs in favour of low carbon alternatives. The sourcing of capital in the coal sector will also damage global growth prospects as global agreements on ending overseas coal financing take shape. Agreements made at a government and company level at the COP26 summit as well as organizations such as the EU and G7 have been curtailing capital access. International measures have also been taken by China, Japan, South Korea and the US who have agreed to end the overseas financing of the coal sector, effectively ending foreign financial support for coal and all non-domestic capital support.
Global Coal Generation To Enter Net Decline As All Regions Other Than Asia Phase Down Output
Global – Net Change In Coal Generation By Region Between 2022f & 2031f, TWh
f = Fitch Solutions forecast. Sources: EIA, Fitch Solutions
Despite Latin America adding some new generation between 2022 and 2031, the region’s heavy dependence on hydropower will wane through to 2031, as various markets look to diversify away from it following energy security concerns during dry periods. As outlined in the chart below, non-hydropower renewables growth will far exceed growth in the region's dominant hydropower and conventional thermal power sectors. We expect Latin America’s non-hydropower renewables capacity and generation to experience the same annual average growth of 7% y-o-y from 2022 to 2031. This corresponds with growth of 200TWh in non-hydropower renewables generation respectively over that forecast period.
Global Renewable Growth To Dominate Changes In Generation Over The Decade
Global – Net Change In Generation By Region And By Fuel Type Between 2022f & 2031f, TWh
f = Fitch Solutions forecast. Sources: EIA, Fitch Solutions
Gas market price volatility will drive new regions to accelerate the adoption of renewable power. In contrast to our outlook for coal, we highlight that lower carbon-emitting alternatives will rise in prominence, however despite many markets showing growth in the gas sector volatility will place pressure on the sector. The MENA region will see the second-largest growth in gas-fired power output between 2022 and 2031 of 367TWh, behind Asia’s 831TWh. However, we expect MENA markets will strengthen their efforts to cut domestic oil and gas consumption in the power sector to boost hydrocarbon exports over the near-to-medium term. High energy commodity prices and the increased demand for non-Russian hydrocarbons in Western Europe will likely reinforce many MENA markets' efforts to reduce their oil and gas consumption, weighing on conventional thermal power growth while supporting investment in non-hydropower renewables. Several key MENA markets, including Egypt and the UAE, are among the fastest growing solar sectors globally. In general, rising gas prices cast doubt on the view that the sector will be used globally as a bridging fuel from coal to renewables.
Non-hydropower renewable growth will surge over the near term with growth led by Asia and Western Europe as energy security trends drive the sector forwards. Over the near term, we expect non-hydropower renewable capacity to continue its surge with average annual global additions reaching 230GW between 2020 and 2024, up from 141GW between 2016 and 2020. Asia will be the key growth driver, accounting for 55% of global generation growth between 2021 and 2030. China alone will make up 46% of global renewables growth, with the country accounting for 730GW of additions, similar to the following nine largest growth markets. This surge in net capacity additions of non-hydropower renewables will be able to facilitate a robust growth in electricity generation. This plays into our forecast that non-hydropower renewables' share of the generation mix will increase by about 7.3%, from 13.3% at end-2021 to 20.6% in 2031. This increase in non-hydropower renewables generation will be about 2,060TWh at an annual average growth rate of 8.4% y-o-y from 2022 to 2031. The MENA region’s growth over the near term, as represented below, has some of the largest increases in net capacity additions.
Renewable Growth To Surge Over The Near Term
Global – Annual Net Change Non-Hydropower Renewable Capacity By Region, MW
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