IEA: Large Differences in Regional Energy Prices Set to Affect Industrial Competitiveness

“Large differences in regional energy prices are set to affect industrial competitiveness, influencing investment decisions and company strategies”, the International Energy Agency (IEA) says in its World Energy Outlook 2013, which was released yesterday.

With an average industry electricity price of 15.1 ct/kWh (annual consumption 160 to 20.000 MWh, medium voltage supply, 100kW/1.600 h to 4.000kW/5.000 h, including electricity tax and all  surcharges) in Germany, that would provide plenty of room to affect industrial competitiveness.

“The extraordinary rise of light tight oil in the United States will play a major role in meeting global demand growth over the next decade, but the Middle East – the only large source of low-cost oil – will remain at the centre of the longer-term oil outlook”, IEA says. According to IEA, “India is set to overtake China in the 2020s as the principal source of growth in global energy demand”.

The report presents projections of energy trends through to 2035, broken down fuel by fuel, sector by sector, region by region and scenario by scenario. One chapter is dedicated to energy efficiency.

According to IEA’s central scenario, global energy demand will rise by one third in the period to 2035, mainly in Asia and the Middle-East and barely in OECD countries, whose energy demand by 2035 will be less than half that of non-OECD countries. Low-carbon energy sources are expected to meet around 40% of the growth in global energy demand. Globally, however, fossil fuels continue to meet a dominant share of global energy demand, with implications for the links between energy, the environment and climate change, IEA says. In its central scenario, IEA assumes that energy-related CO2 emissions still rise by 20% to 2035. “This leaves the world on a trajectory consistent with a long-term average temperature increase of 3.6°C, far above the internationally agreed 2°C target”, IEA warns.

“In some regions, rapid expansion of wind and solar PV raises fundamental questions about the design of power markets and their ability to ensure adequate investment and long-term reliability”, IEA points on the other hand. This also applies to Germany. Regarding the discussion in Germany following the energy policy shift away from nuclear power towards a renewable energy supply in 2011 please see our latest blog post on the first facts emerging on the energy policy talks of the new coalition government that is currently in the process of forming.

The IEA stresses that availability and affordability of energy are critical elements of economic well-being, pointing out the natural gas in the United States (who is experiencing a shale gas boom) currently trades one-third of import prices to Europe and one-fifth of those of Japan. According to the IEA, large variations in energy prices persist through to 2035, affecting company strategies and investment decisions in energy-intensive companies (regarding the German discussion about a partial exemption of energy-intensive companies from the renewable surcharge, please see the blog post mentioned above). “The United States sees its share of global exports of energy-intensive goods slightly increase to 2035, providing the clearest indication of the link between relatively low energy prices and the industrial outlook”, IEA predicts. At the same time the agceny believes the European Union and Japan will see their share of global export decline by a combined loss of around one-third of their current share.

IEA highlights the importance of energy efficiency as a way to mitigate the impact of high energy prices, saying two-thirds of the economic potential will remain untapped in 2035 unless market barriers can be overcome. The agency is naming “the pervasive nature of fossil fuel subsidies” as one such barrier. In view of its forecast for the long-term rise of the average temperature beyond the agreed  2°C target, IEA stresses that “action to reduce the impact of high energy prices does not mean diminishing efforts to address climate change”. On the contrary, the report “emphasizes the importance of carefully designed subsidies to renewables, which totalled USD 101 billion in 2012 and expand to USD 220 billion in 2035 to support the anticipated level of deployment”. An example for how difficult it is to “carefully design” support for renewables is the support granted to PV power plants in Germany, where the political reaction to technology cost reductions was not fast and efficient enough, leading to three years of enormous growth in solar capacity in 2010, 2011 and 2012 despite various feed-in tariff reductions. Only lately new solar capacities have approached the upper level of the targeted range of 2,500 to 3,500 MW (for more information, please see here).

Source: IEA

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