4.2 Status of the sector

Providing energy services from a range of sources to meet society’s demands should offer security of supply, be affordable and have minimal impact on the environment. However, these three goals often conflict. Recent liberalization of energy markets in many countries has led to cheaper energy services in the short term, but in the longer term, investments with longer write-off periods and often lower returns (including nuclear power plants and oil refineries) are not always being made due to the need to maximize value for short-term shareholders. Energy-supply security has improved in some countries but deteriorated elsewhere due to increasing competition, which, because of insecurity, leads to deferred investments in grid and plants. Addressing environmental impacts, including climate change, usually depends on laws and tax incentives rather than market mechanisms (Section 13.2.1.1).

Primary energy sources are: fossil carbon fuels; geothermal heat; fissionable, fertile and fusionable nuclides; gravitational (tides) and rotational forces (ocean currents), and the solar flux. These must be extracted, collected, concentrated, transformed, transported, distributed and stored (if necessary) using technologies that consume some energy at every step of the supply chain (Figure 4.3). The solar flux provides both intermittent energy forms including wind, waves and sunlight, and stored energy in biomass, ocean thermal gradients and hydrologic supplies. Energy carriers such as heat, electricity and solid, liquid and gaseous fuels deliver useful energy services. The conversion of primary energy-to-energy carriers and eventually to energy services creates losses, which, together with distribution losses, represent inefficiencies and cost of delivery (Figure 4.4).

Figure 4.4: Global energy flows (EJ in 2004) from primary energy through carriers to end-uses and losses. Related carbon dioxide emissions from coal, gas and oil combustion are also shown, as well as resources (vertical bars to the left).

Notes: See also Table 4.2. Note that the IEA (2006b) data on known reserves and estimated resources, as used here, differ from the data in Table 4.2 that uses a breakdown in conventional and unconventional. The latter category may include some quantities shown as resources in Figure 4.26.

1) The current capacity of energy carriers is shown by the width of the lines.

2) Further energy conversion steps may take place in the end-use sectors, such as the conversion of natural gas into heat and/or electricity on site at the individual consumer level.

3) ‘Buildings’ include residential, commercial, public service and agricultural.

4) Peat is included with coal. Organic waste is included with biomass.

5) The resource efficiency ratio by which fast-neutron technology increases the power-generation capability per tonne of natural uranium varies greatly from the OECD assessment of 30:1 (OECD, 2006b). In this diagram the ratio used is up to 240:1 (OECD,2006c).

6) Comparisons can be made with SRES B2 scenario projections for 2030 energy supply, as shown in Figure 4.26.

Source: IEA, 2006b.

Analysis of energy supply should be integrated with energy carriers and end use since all these aspects are inextricably and reciprocally dependent. Energy-efficiency improvements in the conversion of primary energy resources into energy carriers during mining, refining, generation etc. continue to occur but are relatively modest. Reducing energy demand by the consumer using more efficient industrial practices, buildings, vehicles and appliances also reduces energy losses (and hence CO₂ emissions) along the supply chain and is usually cheaper and more efficient than increasing the supply capacity (Chapters 5, 6 and 7 and Figure 4.3).

Since 1971, oil and coal remain the most important primary energy sources with coal increasing its share significantly since 2000 (Figure 4.5). Growth slowed in 2005 and the total share of fossil fuels dropped from 86% in 1971 to 81% in 2004, (IEA, 2006b) excluding wind, solar, geothermal, bioenergy and biofuels, as well as non-traded traditional biomass. Combustible biomass and wastes contributed approximately 10% of primary energy consumption (IEA, 2006b) with more than 80% used for traditional fuels for cooking and heating in developing countries.

Figure 4.5: World primary energy consumption by fuel type.

Source: IEA, 2006b. Note: The IEA convention is to assume a 33% conversion efficiency when calculating the primary energy equivalent of nuclear energy from gross generation. The conversion efficiencies of a fossil fuel or nuclear power plant are typically about 33% due to heat losses whereas the energy in stored water (and other non-thermal means) is converted in turbines at efficiencies approaching 100%. Thus, for a much lower energy equivalent, hydro can produce the same amount of electricity as a thermal plant without a system to utilize the waste heat. 1000 Mtoe = 42 EJ.

Around 40% of global primary energy was used as fuel to generate 17,408 TWh of electricity in 2004 (Figure 4.4). Electricity generation has had an average growth rate of 2.8%/yr since 1995 and is expected to continue growing at a rate of 2.5–3.1%/yr until 2030 (IEA, 2006b; Enerdata, 2004). In 2005, hard coal and lignite fuels were used to generate 40% of world electricity production with natural gas providing 20%, nuclear 16%, hydro 16%, oil 7% and other renewables 2.1% (IEA 2006b). Non-hydro renewable energy power plants have expanded substantially in the past decade with wind turbine and solar PV installations growing by over 30% annually. However, they still supply only a small portion of electricity generation (Enerdata, 2004).

Many consumers of petroleum and, to a lesser degree, natural gas depend to varying but significant amounts of fuels imported from distant, often politically unstable regions of the world and transported through a number of locations equally vulnerable to disruptions. For example, in 2004 16.5–17 Mbbl/d of oil was shipped through the Straits of Hormuz in the Persian Gulf and 11.7 Mbbl/d through the Straits of Malacca in Asia (EIA/DOE, 2005). A disruption in supply at either of these points could have a severe impact on global oil markets. Political unrest in some oil and gas producing regions of Middle East, Africa and Latin America has also highlighted the vulnerability of supply. When international trade in oil and gas expands in the near future, the risks of supply disruption may increase leading to more serious impacts (IEA, 2004b; CIEP, 2004). This is a current driver for shifting to less vulnerable renewable energy resources.

Whereas fossil fuel sources of around 100,000 W/m² land area have been discovered at individual locations, extracted and then distributed, renewable energy is usually widely dispersed at densities of 1–5 W/m² and hence must either be used in a distributed manner or concentrated to meet the high energy demands of cities and industries. For renewable energy systems, variations in climate may produce future uncertainties result from dry years for hydro, poor crop yields for biomass, increased cloud cover and materials costs for solar, and variability in annual wind speeds. However, over their lifetime they are relatively price-stable sources and in a mixed portfolio of technologies can avoid losses from fluctuating oil, gas and power prices (Awerbuch and Sauter, 2005) unless their owner also has to sell based on volatile short-term prices (Roques et al., 2006). World oil and gas prices in 2005 and 2006 were significantly higher than most pre-2005 scenario models predicted. This might lead to a reduction in transportation use and GHG emissions (Chapter 5), but conversely could also encourage a shift to coal-fired power plants. Hence, high energy prices do not necessarily mean increased investments in low carbon technologies or lower GHG emissions.

For nuclear power, investment uncertainties exist due to financial markets commanding a higher interest rate to cover perceived risks, thus increasing the cost of capital and thereby generation costs. Increasing environmental concerns will also raise the costs of obtaining permits. Conversely, surplus uranium supplies may possibly lower fuel prices, but this represents a relatively low fraction of generation costs compared with fossil-fuel power stations (Hagen et al., 2005).