World Energy Outlook 2023: Key Takeaways

The Econopolis Strategy team was honored to attend the World Energy Outlook 2023 event in Brussels last Monday. The Belgian Minister of Energy, Tinne Van Der Straeten, and Dr. Fatih Birol, Executive Director of the International Energy Agency (IEA), were the keynote speakers. They shared their insights on historical and current energy developments. Below, we provide the key takeaways from the event to keep you informed about the latest status of global energy:

• The Russian invasion of Ukraine has fundamentally changed perceptions of energy. Previously, energy was primarily seen as a commodity to be purchased from any supplier available. Now, it is regarded as a strategic asset aimed at ensuring security and independence from other nations. This shift has prompted the European Union to invest more significantly in achieving this independence. Notably, Europe did not succumb to financial instability during the energy crisis as Russia had anticipated, highlighting the resilience of its economy.
  
  
• In addition to reducing reliance on a single country for energy supplies, the establishment of an international grid connection across Europe is crucial for an efficient transition to clean energy. The intelligent management of supply and demand, peak hours, and the provision of electric feedback to the grid will facilitate sustainable energy usage. Consequently, investments should be directed towards the development and optimization of energy grids.
  
  
• Amid widespread skepticism regarding the pace of the energy market's transition towards carbon neutrality, the general consensus is that global efforts are lagging and must be intensified. Dr. Birol acknowledges that the transition could always proceed more quickly, yet he also highlights significant progress made to date, offering a balanced perspective on the achievements in the move towards carbon neutrality.
  
  
• Approximately 80% of all newly installed power generation facilities are powered by renewable energy sources, with an additional 5% attributed to nuclear energy.
  
  
• In Western countries, 1 out of every 5 cars sold is electric, while in China, the ratio is even more impressive, with every second car being electric.
  
  
• The demand for heat pumps has surged dramatically, reaching a point where suppliers are struggling to fulfill orders—a stark contrast to the situation a few years ago. However, it's important to note that there was a decline in sales in 2023, attributed to a buildup of capacity that depended on additional government stimuli, which were either reduced (as in Italy), postponed, or delayed.
  
  
• A significant amount of renewable energy is poised to be integrated into the grid, indicating that while these contributions may not yet be apparent, they are indeed substantial and forthcoming.
  
  
• Out of a total of $2.7 trillion invested in the energy market, $1.7 trillion was dedicated to clean energy, underscoring a significant shift towards sustainable energy sources.
  
  
• Current policies predict that the use of non-renewable energy sources will reach its zenith before the year 2030. Enhanced policies could further accelerate this peak, leading to a rapid decline in emissions.
  
  
• China's oil demand constitutes two-thirds of the global demand. As the Chinese economy moves towards less industrialization, the demand for oil is expected to decrease significantly, thereby greatly influencing the pace and nature of the global energy transition.
  
  
• Regarding energy, Dr. Birol states that Europe has made three crucial mistakes in the past decade which can't be repeated in the future:
  
  
• Relying on a single country for energy, as demonstrated by the fallout from the Ukraine conflict, is untenable. Energy is a strategic asset with significant economic power and influence. Transitioning to energy independence provides a strong incentive for the adoption of renewable energy sources.
• The recent policies on nuclear power represent a significant misstep. This point underscores the argument that nuclear energy promotes energy independence and serves as a clean energy source. Dr. Birol notes that with changing policies, nuclear power could see a revival, provided it overcomes economic hurdles. A major challenge for Western countries is competing with China and Russia, who have significantly developed their nuclear capabilities over recent decades. Minister Van Der Straeten emphasized that for nuclear energy to experience a renaissance, nuclear facilities must be constructed on time, within budget, and with a sustainable plan for waste management. Although there is a market for nuclear energy, it must become cost-competitive and politically and socially accepted.
  
  
• The third error was relinquishing control over the solar power market. Europe initially led the solar energy push, positioning itself as a market leader, but then faltered in expanding the industry. This lapse allowed China to seize the opportunity, now producing over 80% of the world’s solar panels. Dr. Birol also cautions about the wind energy market, stressing the strategic importance of maintaining its base in Europe to avoid repeating the solar market's mistakes.

 

• Birol highlights that Europe faces significant industrial challenges, with energy costs being a major issue that renders the region uncompetitive compared with lower-cost environments like China, the US, and the Midwest. This discrepancy leads to an industrial exodus from Europe. Moreover, China's dominance in critical markets—such as critical minerals, materials production, and technology manufacturing—exacerbates the situation. The US has responded with the Inflation Reduction Act to bolster its industry, close the cost gap, and enhance competitiveness globally. Europe needs to adopt similar strategies, focusing on its strengths to compete effectively in specific markets rather than attempting to compete across all fronts.

 

• The financial burden of the energy transition disproportionately affects low- to middle-income households, who, while standing to gain the most from the transition, are ill-equipped to shoulder its costs alone. Policymakers are urged to find solutions to equitably distribute these costs. The IEA is preparing a study on feasible strategies for globally financing the energy transition, which is expected to reveal significant insights into managing this challenge.

 

• Establishing a European investment framework is essential for funding the energy transition. It is crucial for investors to have confidence in a clear route to economic returns. Minister Van Der Straeten suggests that de-risking mechanisms such as Contracts for Difference and Power Purchase Agreements play a vital role in securing bank financing, providing a stable foundation for investment.

 

• Hydrogen is emerging as a pivotal element in the energy transition, offering versatile solutions that could expedite the shift to sustainable energy and address renewable energy challenges, such as storage. Its increasing importance underscores the need for innovation and investment in technologies that leverage hydrogen's potential.

 

The World Energy Outlook 2023 offers a retrospective on a year marked by significant advancements. Unexpected geopolitical conflicts have precipitated a shift in perspective regarding energy management, influencing subsequent policy decisions. The primary takeaway from this year's outlook is the recognition that diversifying energy sources is crucial not just for addressing climate change but also for achieving autonomy and strengthening economies in the face of geopolitical upheavals.