By Fitch Solutions
- Global power consumption growth is set to even out after period of extreme volatility with a near-term surge in power demand.
- Asia will continue to dominate global power consumption growth over the coming decade as a result of the region’s large emerging economies.
- Over the long term, we expect to see a rise in consumption as new power demand comes online in the form of green hydrogen, electrification of new sectors and electric vehicles.
Global power consumption growth is set to even out beyond 2023 after period of extreme volatility with a near term surge in power demand. Following the extreme decline in power demand over 2020 owing to the Covid-19 pandemic, we forecast that power consumption growth will return to plateau at a y-o-y growth rate of 2.2% beyond 2023. Markets saw significant reduction in electricity consumption over 2020 due to weaker levels of economic activity resulting from lockdowns amid the pandemic. This was most prominent in markets with higher levels of manufacturing, mining and construction activity, as these sectors tend to be more energy intensive. Overall, global power demand growth fell by 1.81% – the worst decline in 20 years.
Power Consumption Set to Recover Following Greatest Decline in Two Decades from Covid-19 Pandemic
Asia will continue to dominate global power consumption growth over the coming decade due to the region containing large emerging economies. We expect that the Asia region will see its share of global power consumption rise most significantly from 52.5% over 2021 to 56.7% by 2030, with growth led by its many vast emerging economies. We highlight that China, India, and Indonesia will all see a dramatic rise in electricity demand from a combination of strong demographic and macroeconomic fundamentals as well as rapidly developing industrial activity. As markets accelerate their economic development to recover from the fiscal impacts of the pandemic, we expect to see a near term surge in electricity consumption. For example, demand for power in China’s manufacturing sector as a result of the relatively strong economic recovery has boosted consumer demand. Overall power consumption across China has seen a 16% increase against pre-pandemic H119 levels, while the industrial sector has seen an even larger increase at 22% against H119. We have upwardly revised China’s power consumption growth in 2021 to 5.2%, in line with ongoing stimulus efforts and a strong economic recovery outlook.
We highlight that Indonesia has prioritised improving access to electricity for the population, particularly in the more remote regions of the country. Besides general fundamentals and electrification gains driving power consumption in the country, the rise of the development of data centres across the country will support electricity demand. Indonesia, particularly Jakarta, has seen a data centre construction boom as more data and cloud providers have announced investments into the market. We forecast electricity consumption will increase in the market by an annual average of 5.2% between 2021 and 2030, with growth in power-generating capacity set to grow accordingly to meet this demand.
Asia Power Eclipses the Rest of the World with its Ever-Rising Share
Indian Consumption Growth Driven by Industrial Activity and Economic Development
Indian Prime Minister Narendra Modi’s ‘Making in India’ Initiative will encourage further investments into the country’s manufacturing and infrastructure-related sectors, which will boost power demand. While the government’s front-loaded infrastructure spending projects could deliver a larger boost to growth than we currently forecast, we expect that India’s poor track record of delivering on its spending plans will see growth remain weak for longer. In light of the strict nationwide lockdowns and general economic slowdown from Covid-19 across 2020 and the beginning of 2021, we believe that the lockdowns weighed on domestic economic activity, including manufacturing and production, heavy industries and construction, all of which are energy-intensive sectors. As such, we estimate India’s power consumption contracted by 6.6% in 2020 but will rebound by a robust 6.0% in 2021, despite the second wave of Covid-19.
Over the long term we expect to see a rise in consumption as new power demand comes online in the form of green hydrogen, electrification of new sectors, and electric vehicles. In our Q321 autos investment round-up, announcements indicated a rise in Western Europe’s electric vehicle (EV) production output, with a number of previously planned investments entering into production as automakers accelerate their electrification strategies. The United Kingdom, France and Germany have attracted the greatest number of investments in EV production regionally, as automakers are looking to position themselves in these critical markets in anticipation of a rapid rise in demand for zero-emission vehicles. In general, we expect Europe will see a dramatic rise in its electric vehicle (EV) fleet through 2030, with our Autos team forecasting that the region’s overall fleet will increase from 3.1mn EVs in 2020 to 57.4mn in 2030. That said, we highlight that Asia that will dominate global EV uptake with China emerging as the largest growth market by far with a forecast for 44 million new EVs through to 2030. We believe that the strong demand for electric EVs in markets such as China, South Korea, Australia and New Zealand will result in the Asia region’s vehicle sales recovery to lead all other regions over 2021 driving new demand in power consumption.
Asia and NAWE Regions Will Drive Global EV Uptake
Electrification to Drive New Demand in Both Developed and Emerging Markets
As markets look to adopt carbon neutrality, there will be an ever-greater need to electrify parts of the economy that are large fossil fuel consumers. We expect markets such as France will see a far greater level of electrification in wider sectors including heating than the UK, which favours natural gas. We expect that as markets look to electrify new sectors there will be a growth in power consumption in both emerging and developed economies. As highlighted in the chart below, continued grid connection of African populations and industries is still taking place in many markets, with the continent making up all of the world’s least connected markets. Should industrial activity pick up and more people receive grid connections, we expect this will lead to strong investment opportunities for new power capacity and grid infrastructure throughout the continent.
African Electrification Yet to Add Vast Amount of New Power Demand
Hydrogen to Present Upside Risk to Global Power Demand, Particularly in Europe
According to our green hydrogen projects database, the global green hydrogen project pipeline across stands above 100GW, with the Europe region set to lead growth with 53GW in development. In order to facilitate production across these projects, a vast amount of renewables capacity will be required in order to act as a growth enabler – presenting upside risks to our forecasts. As part of the EU’s latest budget, the ‘hydrogen strategy’ will aim to ensure that the gas can be integrated into as many sectors as possible while rapidly expanding production. The EU aims to support 6GW of electrolyser projects by 2024, which will produce 1.0mn tones (mt). Additionally, between 2025 and 2030, the EU aims to have hydrogen gas integrated throughout multiple industries with electrolyser capacity ramped up to at least 40GW producing some 10.0mt – more than the region’s current demand of 8.0mt. Our research demonstrates that by 2025, an additional demand for non-hydro renewables generation could range between 1-5% more than we currently forecast, and by 2030 this could increase to between 10% and 30%.
Green Hydrogen Project Pipeline Led by Europe
This plays into our long-held view that the hydrogen sector will act as a capacity growth enabler for the non-hydro renewables sector and create opportunities for growth in regions that were previously constrained by poor demand and grid bottlenecks, such as Portugal and Denmark. However, given our current outlook for non-hydro renewables growth in the region, we expect it will hinder growth for electrolysers over the decade. The EU has already identified this roadblock and outlined that an additional 80GW to 120GW of wind and solar capacity will be required.
This article has been sourced from Fitch Solutions and can be accessed here