Picking up from the end of the last article, we left off with the question of what mix of sources current characterizes the energy paradigm we are now moving away from.

Figure 1 shows the world’s primary energy consumption from 1831 to 2016. If we analyze this closely, it is very indicative.

The first observation is that the last energy transition – the fourth – was characterized by an exponential growth in the demand for energy, a growth fueled both by rapid and intense economic progress (compared to the past) and development of the population. The causal link worked in both directions, i.e. in many areas of the world, the wide availability of energy also made it possible to achieve a high and widespread level of wealth and income never been seen before.

In turn, the wide availability of energy came from the growing supply of fossil fuels (coal, oil and natural gas) made possible by technological progress and ever-increasing scientific knowledge.

The second observation is that the various fossil fuels developed in subsequent phases. The first to become widespread was coal, followed by oil and natural gas. Lastly – albeit not a fossil source – a new form of energy appeared on the market from the mid-twentieth century: nuclear power.

The third observation is that current global energy consumption primarily consists of oil, natural gas and coal, which – together – make up approximately 80% of the total. For this reason, the current energy paradigm is also called the “era of fossil fuels”.

The last observation is that this graph does not appear to show any signs of a new energy transition. There seems to no change in the trends of the past or indication that new sources are starting to replace existing ones.

However, if we look closely, in the lower right-hand side we can see a share of renewable (consisting predominantly of wind and solar energy) which, albeit in reduced volume, seems to be undergoing a phase of strong development. This detail is considered by some experts to be the initial signal of a transformation being underway.

Zooming in on this part of the graph (Figure 2), we can see that in recent years, these sources have grown at high rates (an average of +11% per year in 2006-2016), assuming the conventional trend of “exponential” growth. This trend is thought to be the sign of a rapid and continuous expansion of renewables which in the coming years may be able to replace significant quantities of fossil fuels. In this regard, it can be noted that the high percentage increases seen are characteristic of the early stage of development of a power source, where the volumes in question are very low compared to the total need. In the future, as the starting point gradually grows, it will likely be difficult to maintain these percentage increases and it will take time before the new renewable sources hit high market shares. 

The first is cost. As we can see from the graph in Figure 3, in the period from 2010 to 2017, the cost of power generation (worldwide weighted average) from large utility-scale photovoltaic and onshore wind power plants (currently the most common) have dropped by 72% (from $0.360/kWh to $0.100/kWh) and by 25% (from $0.080/kWh to $0.060/kWh) respectively. As a result, the gap in prices on domestic electricity markets narrowed (for a rough comparison: in Europe in the period June 2017–June 2018, the average price ranged from €0.035/kWh and €0.055/kWh; source: Platt’s). If this trend of cost reduction were to continue in the coming years, some believe that this would further support the exponential growth of solar and wind energy.

The decreasing generation cost has been accompanied by a major reduction in the cost of lithium batteries in the period 2010–2016. The possibility of an energy storage is one of the key factors for the dissemination of wind and solar energy which, by nature, are non-programmable and intermittent sources and are therefore difficult to integrate into an electrical system which must provide grid power when needed and constantly maintain a stable balance of supply and demand. Energy storage allows these non-programmable sources to be backed up, absorbing energy that is in excess of the demand and releasing it in the opposite scenario. The current problem with storage systems is their cost which, on top of the generation cost, makes the total cost of renewables particularly high. Reducing the cost of batteries by 73% is a major achievement, yet it is still not enough. Even in this case, however, the expectation of further technological advances encourages some experts to believe that this obstacle can be definitively overcome.

The third sign is the growing priority given to the adoption of measures to combat climate change in major domestic and international policy agendas. The political and regulatory driver is already proving to be the main force of the new energy transition and could become even stronger in the future.

Lastly, the fourth sign is tied to consumer preferences: in the wealthiest countries – although not only – greater social awareness of the problem of global warming is beginning to be one of the key decision-making parameters in companies’ and consumers’ energy choices. This is encouraging the adoption of low-carbon solutions, i.e. the use of technologies and energy sources that can reduce greenhouse gas emissions.

Here, we might ask a new question: while there is evidence that drivers are coming into play to change the trajectory of the development of the energy system, what are the mega-trends that guide the drivers, identify new destinations and determine the characteristics of the new energy paradigm that we are heading toward? 

Giuseppe Sammarco SVP Energy Sector Integrated Technical Studies, Eni E&P Division.