The Unpopular Truth about Electricity and the Future of Energy

1. Electricity and investments - the current situation

Figure 2: Top 10 countries - electricity generation in 2022

(1) Electricity production share of respective country; (2) CAGR - compound annual growth rate 2012-2022 in %; (3) Includes other renewables & other.

Source: Schernikau Research and Analysis based on Energy Institute 2023

Fossil fuels - in order of importance oil, coal, and gas make up ~80% of global primary energy ("PE") production, totaling ~170.000 TWh or ~600 EJ. Despite Covid-19, geopolitical turmoil, and significant wind and solar capacity additions, it is estimated that the percentage will not change in 2023 or 2024; quite to the contrary, coal is making a comeback (IEA 2022). Coal and gas made up ~60% of global gross electricity production, totaling ~29.200 TWh in 2022. Three countries alone, China, the USA, and India, make up ~50% of global electricity consumption (Figure 2). It is important to note that global electricity production consumes up to ~40% of primary energy, with transportation, heating, and industry accounting for the remaining ~60% (Figure 3 and Figure 35, p 104).

Realistic primary energy growth of ~50% until 2050 is driven by ~25% population growth and ~20% average per capita energy demand growth. This contrasts with IRENA's, McKinsey's, and the IEA's "Net-Zero" pathways, which often assume much less growth and either flat or even a ~10% drop in primary energy. McKinsey 2022b assumes a 14% rise until 2035 and thereafter flat primary energy consumption until 2050. IEA Net-Zero 2021 assumes a 10% drop in primary energy consumption demand as early as 2030. The "primary energy" measure and the misconception of falling primary energy with solar and wind's increased penetration is discussed in Chapter 2.7.

Figure 3: Overview of global primary energy and electricity in 2022

(1) Only the portion of Industry/Transport/Building that is not included under electricity; (2) assumed worldwide net efficiency of ~33% for nuclear, ~37% for coal, ~42% for gas. With an assumed avg. ~40% efficiency => 2~29.000 TWh becomes ~72.000 TWh or roughly 40% of ~170.000 TWh.

Source: Schernikau Research and Analysis based on Energy Institute 2023 and IEA Statistics 2023

Current energy policy focuses on the electrification of energy, thus significantly increasing electricity's share of primary energy by increasing the use of electricity for transportation (see EVs), heating (see heat pumps), and industry (see DRI, direct reduced iron, producing steel using hydrogen). Therefore, this book focuses on electricity. For a more comprehensive discussion on transportation, we recommend Kiefer's 2013 Twenty-First Century Snake Oil, which includes details on hydrocarbons and biofuels for transportation that are not covered herein in detail.

Despite the trillions of US dollars spent globally on the "energy transition" (Figure 4), the proportion of fossil fuels as part of total energy supply has been essentially constant at around 80% since the 1970s, when gross energy consumption was less than half as high (WEF 2020). Also in Europe, fossil fuels' share is still above 70%, in Germany ~80%. Kober et al. 2020 among others, confirm that total primary energy consumption more than doubled in the 40 years between 1978 to 2018. At the same time, the energy intensity of GDP improved by a little less than 1%, confirming the Jevon's Paradox that energy efficiency improvements are in principle offset by higher energy demand (Polimeni et al. 2015).

Figure 4: Investments in coal are one third of wind/solar, while coal provides ~3x more electricity

Note: Investments are considering investments in fuels and power.

Source: Schernikau Research and Analysis based on IEA WEI 2023, Energy Institute 2023 and BNEF 2023

Variable "renewables"1 in the form of wind and solar accounted for ~5% of global primary energy and ~12% of global gross electricity production in 2022 (refer to Schernikau and Smith 2021 for more details on solar PV and Smith and Schernikau 2022 on wind). Thus, fossil fuels still exceeded wind and solar by a "Fossil to Wind-Solar Factor" of 15x for primary energy and 5x for electrical power production (Figure 4). It must be noted that thermal electricity generation also produces much-needed heat as a byproduct - through co-generation - that is used for industrial and household purposes. This heat generated would have to be replaced, and would further increase electricity demand, if the world were to reduce thermal power generation.

Note: Other forms of energy supply that are categorized as "renewables" or "low carbon"- such as nuclear, biomass, hydro, geothermal, or tidal power - are not discussed further in this book as they are not considered erratic or are less variable and can, in principle but with some exceptions, be included in dispatchable energy resources. Biomass has a very low net energy efficiency, is limited by suitable cropland, but consistently provides around 6-7% of global primary energy. Hydro energy is very energy efficient but is limited by suitable natural river flows, and it consistently provides around 7% of global primary energy and 15% of electricity. Nuclear is the most energy-efficient way of generating electricity and contributes around 4% of global primary energy and 9% of electricity. For more details on biofuels, please refer to the detailed plain-language summary provided by Kiefer 2013 as well as EPA 2022.

As per the IEA, global energy and fuel supply investments are increasingly focused on "low carbon" energy sources. Wind and solar - for their currently insignificant energy share - receive more than half of the total investment that oil, coal, and gas receive combined (Figure 4). Moreover, this ratio continues to change quickly in favor of wind and solar as investment in fossil fuels continues to fall while investment in wind and solar soars. Subsidies for both "renewables" and conventional energy are not considered here2, although the EU spends more subsidies on "renewables" than on fossil fuels, even in absolute terms (EC 2022, p30).

JP Morgan 2022 summarized the falling capex of S&Ps global 1.200 energy firms while absolute fossil fuel energy demand continues to increase (Figure 5). Dr. Fatih Birol, IEA's executive director and one of the world's foremost energy economists, told the Guardian in May 2021 (Harvey 2021): "If governments are serious about the climate crisis, there can be no new investments in oil, gas and coal, from now - from this year".

Additional important global energy statistics for the pre-Covid year 2019 include the following (BNEF 2023, IEA WEI 2023, IEA WEO 2020):

• Global installed electrical power generation capacity from coal, gas, and oil equaled 53% of all installed capacity in 2022. This capacity generated ~61% of global power.
• Global installed wind and solar power generation capacity equaled 24% of all installed capacity. This wind and solar capacity generated ~12% of global power.
• Global investment in oil, coal, and gas supply and power generation equaled US$ ~500 billion in 2022, of which US$ ~100 billion was invested in fossil fuel power generation (down from US$ ~180 billion ten years ago); the remainder was used for securing fossil fuel supply.
• The IEA's Sustainable Development Scenario (SDS) requires this investment to increase annually to US$ 750-800 billion in the period 2025 to 2030 to keep the energy system supplied and stable.
• Global investment in wind and solar alone reached over US$ ~500 billion in 2022. Total investment in the "energy transition", which also includes investment in electricity consumption such as electric vehicles (EVs), biofuels, storage, CCS, and hydrogen, was US$ ~1.100 billion. Investment in wind and solar exceeded US$ 6 trillion in the past 20 years (see Figure 6).
• The red line in illustrates that only a relatively small expenditure increase in "renewable" energy production occurred after 2011. The majority of increased expenditure was for electricity consumption, rather than "production", which is often referred to as "investment in the energy transition".

Figure 5: Fossil fuel capex of S&P Global 1200 energy companies slumps despite growing demand

Note: Dotted line indicates estimates.

Source: JP Morgan 2022, p6, based on BP, Bloomberg, IEA, and JPM analysis

It should be noted that despite this investment disparity - US$ ~500 billion for ~5% of primary energy versus US$ ~1.000 billion for ~80% of primary energy including oil, a relative investment factor per unit of energy supply of ~10:1 (Figure 4) - the IEA confirmed in July 2021 that ". [renewables] are expected to be able to serve only around half of the projected growth in global [electricity] demand in 2021 and 2022" (IEA Electricity 2021, p3). In fact, the IEA confirmed in January 2022 that over 2/3 of electricity growth during the high growth year 2021 came from conventional fuels, including over half from coal alone (IEA Electricity 2022). For the...