Electrification: the limping pillar of the energy transition

Electrification, renewables and efficiency are the 3 pillars on which the energy transition is based. Efficiency to increase the productivity of the energy consumed, renewables to achieve clean electricity and electrification so that the world does not depend on fossil fuels. The problem is that while renewables and efficiency are advancing fast and with great prospects, electrification is slower and threatens to slow down the energy transition.

The virtuous triangle: electrification, renewables and efficiency

I love the graph in IRENA’s World Energy Outlook report which summarises in a very visual way the 3 keys to the transition we need to achieve to reach the +1.5ºC target by 2050.

According to the IRENA scenario, by 2050 we should have reduced total final energy consumption compared to 2020. Given that by 2050 global GDP will have grown significantly, this means that efficiency must be increased very significantly to produce much more with the same energy (or even slightly less).

Direct electricity use should grow from the current 22% to 51%. And the share of renewables in that electricity should grow from the current 28% (including hydro) to 91%. And all this in order to bring fossil fuels from 63% to 12% of TFE.

Efficiency

This is probably one of the areas where most progress has been made. According to the IEA study on appliance efficiency, in advanced economies such as the USA and the EU, an impressive 15% annual reduction in electricity consumption is achieved through efficiency programmes such as energy labelling. This figure seems very high to me, but even if it is only half that, it is still relevant.

And the truth is that improving efficiency is something we have already normalised in our day-to-day lives. It is not only household appliances that are becoming more efficient, but also industrial processes, lighting and so on. In fact, aspects such as the massive adoption of LED technology have been great steps in efficiency that have been made in short periods of time.

According to IRENA’s WEO, there is still a lot of work to be done on the investments needed to achieve efficiency targets, but we are on the right track.

Renewables

Renewables already account for more than 80% of new generation capacity installed globally. And with solar expected to grow and storage support, this rate is not expected to slow down.

According to IRENA’s monitoring, work needs to be done to increase the rate of installations (especially in wind) but with cost reductions in all technologies and especially in solar PV, the investment figures are reasonably achievable.

Electrification

And this is where we start to see the problems. If we look at electricity demand data in Spain, we see that the peak was reached in 2011 and that since 2018, demand has fallen by almost 7%.

The problem is clear: efficiency is moving faster than electrification. We are not being able to incorporate new demand at the necessary pace.

At the CITE conference on renewables that we recently organised in Pamplona, this was one of the key topics. Industry heavyweights warned that without additional demand, there was little point in continuing to install renewables such as solar, which will only lead to further price cannibalisation.

There was also a call to stop incentivising self-consumption and to incentivise mass electrification because if the demand pie does not increase, self-consumption ends up replacing large-scale renewable generation, which is more efficient and cheaper.

And what are the ways to increase demand via electrification? Well, according to the IEA, the ones with the most room for growth are the ones we all have in mind: electric cars, heat pumps and green hydrogen.

Electric car

In 2022, 36,000 electric cars and 48,000 plug-in hybrids were sold in Spain. The government’s goal is to have 5 million electric or plug-in hybrid vehicles by 2030. It is clear that we are a long way from the target, but supposing we achieve it, what increase in electricity demand will it mean? Let’s do some simple calculations:

In 2021, the share of EVs vs PHEVs in Spain was 87-13% for a total of 335,000 vehicles (source Unespa report): We assume that in 2030 this share will have increased to 90-10% due to higher growth of EVs.
The average annual number of kilometres driven per vehicle in Spain is 12,000km.
We assume average electricity consumption of 17 kWh/100km.
We assume that a PHEV does 50% of its mileage in electric mode.

Annual EV electricity consumption in 2030: 4.5 mill EVs * 12000 km * 0.17 = 9.18 TWh

Annual PHEV electricity consumption in 2030: 0.5 mill PHEV * 12000 km * 0.5 * 0.17 = 0.51 TWh

As the annual consumption in Spain in 2022 was 250 TWh (source: REE) –> The electric car would account for +3.9% of electricity demand.

Heat pumps

In Europe, the target is to have 60 million heat pumps installed by 2030. Let’s see what the increase in demand would be today:

Average electricity consumption of a heat pump in Europe: 4000 kWh/year (source: Viessman)
Annual electricity consumption: 60mill * 4,000 = 240 TWh

Taking into account that European demand was 3,300 TWh in 2022 (source: Statista) –> heat pumps would account for +7.3% in electricity demand.

Green hydrogen

Here, before making calculations, we must separate reality from hype and what better than to turn to the champion of bringing hydrogen down to the reality of numbers and physics: Michael Liebreich. We had the opportunity at CITE to listen to his talk and he was very clear about hydrogen: it only makes sense in certain applications that he explains using his hydrogen ladder 5.0.

What is interesting is that just taking into account these “unavoidable” applications that green hydrogen would have, the demand figures are impressive. In other words, it makes no sense to exaggerate the role hydrogen will play in the future because just by using it in areas where it has no alternative, it will create a huge market.

To obtain 94 MT of green hydrogen will require about 5000 TWh.

Global consumption in 2002 was 25,530 TWh (source: Statista) –> the use of H2 immediate applications would account for +20% in electricity demand.

Conclusions

If we want to accelerate the transition, we must accelerate the electrification of the economy and society. Currently, stagnating and even declining demand poses a serious risk to the viability of renewables. Of the 3 main growth vectors, green hydrogen seems to be the most promising but may also be the most distant in time. Electric cars and heat pumps are technologies that are already here, they are superior to current technologies and with the right incentives their deployment can be accelerated. They are also good examples of flexible demand with storage capacity, aspects that will help the grid when the penetration of renewables is higher. It is therefore essential to strengthen incentives for the implementation of these technologies.