Seven Years for Perestroika in Energetics

The Global and Russian Energy Outlook 2019 presents long-term forecasts of the development of global energy markets. Russian researchers analyzed those prospects in detail, taking into account technological, political, climatic and other factors. Experts give three forecast scenarios – of conservative, innovative and energy transfer (focalization of countries’ energy policies on decarbonization).

Russian analysts believe that under the pressure of changes in energy policy and the development of new technologies, the world is entering the 4th energy transition, which is marked by the widespread use of renewable energy sources and the abolishment of fossil fuels. The authors of the study made the following conclusions:

• The growth in the global primary energy consumption will slowdown significantly by 2040, including due to energy efficiency growth.
• The rapid development of renewable energy sources (RESs) will enable them to provide 35-50% of world electricity production and 19-25% of total energy consumption by 2040, and the most serious transformations of world energy are associated with their further development.
• Coal will reduce its share from 28% to 19-23%.
• In 2040 perspective, growth in the global production at nuclear power plants will lag behind the growth rate of electricity consumption, and by 2040, the share of nuclear energy will drop down to about 10%.
• Fears (or dreams) of high oil, gas and coal prices are a thing of the past. The world has entered an era of wide technological and inter-fuel competition. The oil market will lose a significant share due to increased efficiency of vehicles and the spread of transport on alternative energy sources. Budget revenues of oil and gas countries from energy exports will inevitably decline.
•  The power industry is rapidly transforming. Decentralized generation is developing fast; consumers are turning from passive into active players in the system; an energetic search for solutions in the field of electricity storage is going on, and the transformation of electric energy markets has started.
• As far as Russia is concerned, the transformation of energy and a decrease in budget revenues from exports lead to a decrease in the contribution of the oil and gas sector, which is the most important component of the economy. But it is the fuel and energy complex (FEC) and the transformations that take place in it that can give the country a new impetus for the development and growth of GDP through executing the huge potential for energy conservation and creating additional demand for industrial products to modernize the fuel and energy complex. This requires a decisive economic and energy policy of adapting the country to energy transfer. But to do this, we have a window of opportunity limited to literally 7-10 years.

“The unfavorable investment climate and the institutional structure of the fuel and energy complex, which impedes the development of energy efficiency and the introduction of any low-carbon technologies, will hamper Russian economy, taking away all opportunities for increasing GDP growth rates,” said Tatyana Mitrova, Director of the Center for Energy at the Skolkovo Business School.

The demand for fossil sources in reality is less than expected, and new technologies provide a significant slowdown in global energy consumption. The desire to adhere to the traditional strategy at any cost can lead to a significant reduction in market share, supply and export revenues, experts say.

Despite the above threats, Russia is in no hurry to adjust its energy strategy. “In the conditions when it is necessary to slowly dismantle the raw material infrastructure, Russia is actively developing it, investing tens of billions dollars in it. Thus, the country becomes a hostage to the system, since it will necessarily try to return the investments,” says Igor Nikolayev, Director of the Institute for Strategic Analysis of FBC.

According to Tatyana Mitrova, the investment decisions on infrastructure development that are being adopted today largely ignore global trends. The threat of a possible necrosis of investment is quite real. Love for traditional megaprojects in the conditions when the world is moving towards decentralization can cause a very big risk for the Russian Federation.

“One of the priorities of the global economy over the past decade has been the decarbonization policy aimed at reducing greenhouse gas emissions in the fight against climate change. For Russia, decarbonization as one of the main tasks “is merely a hope,” analysts from the Energy Center of the Skolkovo Business School say.

The judgments of the Skolkovo researchers confirm the correctness of the Position of public environmental organizations. In a document prepared on the eve of the climate conference in Katowice (СОР24), representatives of the Russian Social and Ecological Union (RSEU) stated: “Decarbonization of the economy (replacing fossil fuels with diversified renewable energy sources, energy efficiency measures and releasing the ‘clean energy’ resource at the account of this) is the path to the future and the key to the competitive development of the national economy, it’s money for development that lies under our feet ... The strategy should correspond to the global environmental transition to carbon-free energy by the middle of the 21st century, provide for an early avoidance of coal use, should not include any increase in the share of nuclear power plants and large dam hydro power plants in the country's energy balance as those are far from environmentally unjustified solutions for the reduction of the human impact on the Earth’s climate system.”