Global Electricity Market

Unlike coal, oil and LNG, which can all be shipped around the world, there is no global market for electricity. The electricity market is highly fragmented, consisting of thousands of regional subsystems in various jurisdictions where overcapacities alternate with shortages. While global energy demand continues to grow dramatically, huge differences remain between industrialized countries and the rest of the world. In its International Energy Outlook 2016 the US Energy Information Agency (EIA) projects an increase of global electricity consumption by 69% within three decades, from 21.6 trillion kWh in 2012 to 36.5 trillion kWh in 2040.

While the demand for electricity in OECD countries will increase by a total of 38%, demand in non-OECD countries will double – reflecting the difference in GDP growth of 2.0% for OECD and 4.2% for non OECD countries. Some of this growth in demand will be met by electricity generated from fossil fuels, but renewables will increase their share of the energy mix from 25% to 33% between 2012 and 2040 and double their output in absolute terms. Viewed over a period of 28 years, this does not appear to be disruptive. Disruption, however, is happening within the sector. On a global scale, 90% of all renewable energy is hydropower, which will – due to natural limitations – grow only marginally. That implies that all of the remaining growth will be contained in the non-hydro sector, i.e. wind and solar.

The amount of photovoltaic electricity generated – private and utility-scale – has grown exponentially from 100.000 MWp in 2012 to 390.000 in 2017. In other words, the fastest-growing source of global electricity supply over the next two decades will be the most unreliable and volatile source – and will depend on weather conditions that even supercomputers cannot predict. This will have far-reaching repercussions: governments trying to stabilize energy markets will impose more regulations, and electricity prices will become distorted with large deviations between countries, energy sources, and customer categories.

In consequence, price volatility is growing as a result of both the laws of nature and government intervention. These volatile conditions will prevail throughout the transitional period from a world powered by fossil fuels and centralized energy production to one where decentralized, renewable sources prevail. Over the long term, the global electricity market will be governed by new technologies to balance, store and trade energy between multiple intelligent – probably blockchain-driven – actors that can create a much better equilibrium than regulation could ever achieve. With this in mind, flexible players will be able to cope best with this new energy world.