Energy remains the lifeblood of the global economy, fostering economic growth, driving improvements in science and technology, and enhancing human lifestyles and well-being. Broad trends of population growth and urbanization across the developing world, and an aging global population all but ensure that global energy demand will continue to grow for the next few decades.
While 85% of primary energy consumed globally is fossil fuel, positive trends are evident. By 2040, the International Energy Agency (IEA) projects that some 40% of power generation will be renewable versus 25% today. With increasing efforts to reduce carbon emissions and improve energy efficiency, the Chief Investment Office (CIO) sees significant associated economic potential and health benefits from cleaner, more efficient and cost effective energy resources.
With this will come investment opportunities, which we describe in detail in our report, Longer Term Investments: Renewables. But will renewable energy supplies be sufficient to satisfy increasing global demand for energy? CIO believes no single energy source alone will be enough.
The world uses an enormous amount of energy; and with growth in demand, particularly in the developing world, comes needed investment in costly infrastructure. Also, the developed world has grown extremely reliant on predictable, reliable and cost effective energy, much of which comes from fossil fuels.
Despite advances in renewable energy technology, certain sectors including industry, freight and air transport remain reliant on fossil fuels due to a lack of alternatives. Many of us simply assume we have as much reasonably-priced energy and electricity as needed to support global economic growth and provide the day-to-day conveniences that we take for granted. But, a sudden drop in supply can be disruptive. As global demand growth has shifted to the developing world, the challenge to create reliable energy resources on a large scale at a reasonable cost is likely to intensify.
The transition to cleaner energy resources will take time and will be driven by different variables in various regions of the world. A few things to consider as we chart a path towards a cleaner and more sustainable global energy resource mix are:
- The world's energy appetite continues to rise.
- A large portion of the global population remains energy poor.
- Costs of renewable energy resources continue to decline globally.
Renewables and natural gas are likely to be the most rapidly growing sources of energy over the next two decades. Importantly, coal's share in power generation will decline. Still, fossil fuels currently account for some 81% of the world's energy consumption; and despite the rapid increase in the use of renewable resources, IEA projects fossil fuels will account for 74% of global energy consumption in 2040.
While total transformation of our energy resource base may take time, we are emboldened by our proven ability to innovate and to find solutions.
Main contributors: Jay Dobson, Nicole Decker, Laura Kane, Michelle Laliberte
Product of the Chief Investment Office (CIO).