World Energy Outlook 2018

The gold standard of energy analysis

World Energy Outlook 2018 examines future patterns of a changing global energy system at a time of increasing uncertainties and finds that major transformations are underway for the global energy sector. Across all regions and fuels, policy choices made by governments will determine the shape of the energy system of the future.

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Introduction

The electricity sector is witnessing its most dramatic transformation since its birth more than a century ago. For that reason, the World Energy Outlook features a special focus on electricity this year to examine what could lie ahead for global power systems.
Dr Fatih Birol, IEA Executive Director

Electricity is the fastest-growing source of final energy demand, and over the next 25 years it continues to outpace energy consumption as a whole. The power sector now attracts more investment than oil and gas combined – necessary investments as the generation mix changes and ageing infrastructure is upgraded.

The global electricity supply is also being transformed by the rise of variable renewable sources of generation such as wind and solar PV. While this puts electricity at the forefront of the clean-energy transitions, providing access to the nearly 1 billion currently deprived, helping cut air pollution and meet climate goals, these changes will require a new approach to how power systems are designed and how they operate. Otherwise, rising electrification could result in less secure energy systems, underscoring the urgent need for policy action in this critical sector.

Key Findings

Electrification of end uses is a promising pathway to decarbonising energy use

Electricity today accounts for 19% of total final consumption of energy, a share that is set to increase as demand growth for electricity outpaces all other fuels. In the New Policies Scenario, the share reaches 24% in 2040, a far cry from full electrification. While there is considerable scope to push electrification beyond this level, not all end-uses can be readily electrified, such as high-temperature heat demand in industry, long-haul aviation and shipping, where electrification is harder to achieve due to either economic or technical barriers.

Annual growth in total final consumption by fuel (left) and share of electricity (right) in the New Policies Scenario
	Coal	Oil	Gas	Electricity	District heating	Renewables	Traditional use of biomass
2017-25	3.078241605	44.58255313	35.84291689	44.94399135	1.565198729	15.90709134	1.016551875
2025-40	-0.617949964	16.2835706	33.91605043	51.95913128	0.069478011	17.3912856	-5.0196556
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	Share of electricity in TFC
2017	19.03926246
2025	20.28786997
2040	23.72559258
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But electricity growth is a tale of two stories driven mostly by developing economies

Developing economies will account for the largest share of new demand, driven by rapid economic and population growth, the need for more goods and services and increasing policy push towards electrification. Motor systems used in Chinese industry alone will account for almost a fifth of the increase in global electricity demand to 2040. A similar increase is expected from growing needs for cooling, with the number of home air conditioners in developing economies rising to 2.5 billion units, up from about 600 million today. Accelerating uptake of electric vehicles and electric water heaters could see demand growth in developing economies increase even more rapidly.

	United States	European Union	Japan	Other advanced economies	China	India	Other developing economies	NPS
2000	3589.134267	2604.15093	967.9129884	1491.93633	1174.085221	376.1524186	2952.348173	13155.72033
2001	3553.752919	2669.403453	952.4319233	1529.585604	1277.414151	381.8293023	3005.977852	13370.3952
2002	3630.598616	2697.737674	967.4624105	1576.966785	1417.137628	405.5311395	3116.97542	13812.40967
2003	3660.295174	2760.110837	959.8695419	1611.778609	1642.015267	433.4039884	3265.114788	14332.58821
2004	3713.629419	2820.041081	989.4564512	1675.636486	1897.029791	463.0679535	3418.770821	14977.632
2005	3808.217826	2858.665523	1006.849205	1716.033758	2164.116395	489.3419419	3576.578704	15619.80335
2006	3813.274151	2906.329547	1012.065434	1753.543268	2482.422884	543.1518372	3762.208805	16272.99593
2007	3916.022942	2923.946674	1037.247379	1822.911082	2851.525767	588.316093	3917.046948	17057.01689
2008	3898.262628	2935.815965	993.6653116	1861.708811	3014.285814	620.165186	4027.124727	17351.02844
2009	3711.125012	2782.07764	962.8591326	1832.450592	3236.59407	669.0824884	4037.571722	17231.76066
2010	3879.034221	2909.637663	1027.90307	1920.396256	3667.024779	728.0067674	4345.693067	18477.69582
2011	3871.437198	2863.42736	969.4261395	1986.716213	4093.212919	800.8269767	4488.162177	19073.20898
2012	3817.352895	2869.920779	958.0977698	2015.472436	4368.943186	840.210907	4662.763065	19532.76104
2013	3858.20293	2846.173756	980.3316977	2048.408746	4760.205849	890.2941977	4806.171179	20189.78835
2014	3880.269395	2784.214384	970.4031395	2068.646908	4981.561442	975.4368953	4931.193917	20591.72608
2015	3883.816	2820.745198	969.1953256	2086.585132	5146.701244	1036.589802	5035.545133	20979.17783
2016	3904.235488	2852.705267	972.2615	2126.818816	5450.589256	1114.738093	5132.420951	21553.76937
2017	3833.682291	2915.05695	995.6660395	2195.920008	5774.721063	1219.726476	5274.392647	22209.16547
2018	3897.958781	2923.856028	996.2942244	2224.65584	6059.30351	1292.408135	5398.881085	22793.3576
2019	3944.993881	2942.603631	996.4571895	2267.34222	6286.360259	1368.387135	5563.036924	23369.18124
2020	3957.158323	2953.283298	991.5907244	2300.246025	6516.318184	1447.953621	5712.17547	23878.72565
2021	3962.429292	2963.294201	990.1620407	2335.729207	6726.565817	1535.309962	5853.475168	24366.96569
2022	3965.598544	2971.310447	987.9144221	2369.829865	6927.21359	1628.320541	6002.882142	24853.06955
2023	3971.484667	2977.602585	986.6904477	2404.302329	7123.956433	1727.846634	6158.779655	25350.66275
2024	3986.211376	2982.99379	986.1355419	2439.381806	7331.54903	1827.80954	6325.222514	25879.3036
2025	3998.640605	2989.829016	986.470036	2474.621317	7530.329955	1929.605884	6507.901672	26417.39848
2026	4016.387605	2999.672736	987.7640686	2511.658241	7735.8771	2037.528535	6707.650779	26996.53906
2027	4033.175605	3007.011103	989.0892651	2547.624157	7933.387372	2146.932302	6913.405397	27570.6252
2028	4052.281558	3016.181555	990.2892698	2584.153812	8130.70018	2256.670965	7126.673757	28156.9511
2029	4072.947279	3026.096158	991.4817558	2620.656337	8321.999441	2367.608756	7349.346956	28750.13668
2030	4093.375349	3037.059978	992.4185372	2657.042059	8508.214098	2478.766151	7582.325142	29349.20131
2031	4115.30743	3050.423623	993.7406849	2693.442085	8686.790987	2592.331988	7811.798585	29943.83538
2032	4138.127407	3063.030782	995.429214	2729.749789	8866.497841	2707.217616	8048.988754	30549.0414
2033	4161.699221	3079.560305	997.1443605	2766.724215	9030.198126	2825.473953	8293.380123	31154.1803
2034	4185.551186	3096.66445	998.7244628	2803.983359	9190.416084	2945.187128	8544.442651	31764.96932
2035	4208.509849	3113.174556	1000.569887	2842.373898	9354.175066	3065.867826	8804.306669	32388.97775
2036	4234.094733	3130.511233	1002.107636	2881.896842	9512.798805	3187.743721	9062.438561	33011.59153
2037	4263.90757	3150.840188	1004.764249	2922.093434	9673.621565	3312.092488	9331.154352	33658.47385
2038	4294.377023	3168.925428	1005.993076	2960.421366	9814.214722	3437.669733	9603.854333	34285.45568
2039	4324.307953	3187.753319	1006.832569	2999.188669	9947.348216	3563.03036	9881.97139	34910.43248
2040	4353.735616	3205.763216	1008.476464	3038.359305	10072.23899	3682.989465	10164.34889	35525.91194
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Meanwhile, in advanced economies, electricity growth is muted

Continued efficiency improvements in lighting, refrigerators, motors, etc. result in electricity demand staying relatively flat in advanced economies. Electricity gaining ground in providing electro-mobility and heat for homes, offices and factories provides a lifeline for growth. However, even widespread electrification will not be sufficient to drive a major increase in electricity demand in these regions, as the higher efficiency of electric cars and heat pumps reduces the additional amount of electricity needed for transportation and for heating our homes. For example, : pushing EVs to 100% of new car sales in advanced economies by 2040 (compared to 1% today) would increase electricity demand growth to an average of 1.1% annually, as EVs are more than twice as efficient as conventional cars and stock turnover low.

Introducing the Future is Electric Scenario (FiES)

Policy choices will have a great impact on how the electricity sector develops in the future, especially what key levers are used to boost electricity demand growth. Policies and regulations play a determining role in unlocking higher electrification: encouraging efforts to accelerate the rollout of electric charging infrastructure for vehicles, simplifying switching to electric heating in both buildings and industry, or pushing to achieve universal access to electricity or improving standards of living.  

The analysis this year introduces the Future is Electric Scenario (FiES) to examine what would happen to electricity demand if economic opportunities for electrification were maximized. For instance, in the FiES by 2040, almost half of the car fleet goes electric; electricity makes rapid inroads into heating needs for buildings and industry; a digital economy connects nearly all consumer devices and appliances; and full electricity access is achieved.

Electrification of end-uses in the Future is Electric Scenario and the New Policies Scenario
	2017	NPS	FiES
Electricity for heating	20.19277294	1.188909247	22.08411692
Network enabled appliances	13.98124411	37.36183688	23.13987165
Access to electricity	86.79500053	5.359101979	7.84589749
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	New Policies Scenario	Future is Electric Scenario	New Policies Scenario	Future is Electric Scenario
Ammonia	0	4.68463974	0	0
Heat	0.712310144	5.434938211	0	0
EAF in steel	0	0	47.86606575	2.555809853
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	NPS	FiES	NPS	FiES
LDVs	0.330849845	0.69279485	0	0
2/3-W	0.737970031	0.191531443	0	0
Trucks	0	0	0.447334086	6.481304699
Buses	0	0	4.000596067	4.057454138
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Note: EAF = electric arc furnace, LDV = light-duty vehicles, 2/3-W = two/three-wheelers; Trucks = heavy-duty trucks only

A strong policy push to electrify end uses sees electricity demand increase to nearly 7 000 TWh above the New Policies Scenario in 2040, an increase equivalent to the electricity demand of China and India today. The biggest potential for demand growth lies with electrifying transport and heat. The deployment of EVs is aided by their improving competitiveness with internal combustion engine (ICE) vehicles in most major markets, but would require adequate infrastructure roll-out.

The implications for energy and the environment are significant. Oil demand would peak by 2030, and expenditures for electricity would overtake that of oil products before 2035. Electrification decreases air pollutant emissions, reducing premature deaths by nearly 2 million relative to the NPS.

However, while electrification provides an avenue to decarbonise end-uses, overall energy sector carbon emissions will keep growing under this scenario without stronger efforts to decarbonise electricity supply. Electrification alone is not sufficient to put the world on track to meet climate goals; this would require a more comprehensive energy system strategy. Paired with a much more widespread deployment of renewables and other low carbon sources of electricity, electrification can help follow a more sustainable trajectory.

Change in electricity demand by sector in the FiES relative to the NPS, in 2040 (left) and energy related CO2 emissions by scenario (right) 
	NPS	FiES	FiES with power sector decarbonisation	SDS
2015	32.08090364	32.08090364	32.08096724	32.08090364
2016	32.05308108	32.05308108	32.05315272	32.05308108
2017	32.58035787	32.58035778	32.5804312	32.5807653
2018	32.93909656	32.95404177	32.86871255	32.71733187
2019	33.17156555	33.18123187	32.91365204	32.62204493
2020	33.26256826	33.30729764	32.72805063	32.24612668
2021	33.35711939	33.44167297	32.51759737	31.78543659
2022	33.45767932	33.57054692	32.26744861	31.27930334
2023	33.56998019	33.71883097	31.97036271	30.70696468
2024	33.7493454	33.90627872	31.7167824	30.15707734
2025	33.90241066	34.005235	31.36689451	29.53513792
2026	34.06102189	34.09889958	30.92197827	28.8296239
2027	34.20872238	34.18258865	30.37933259	28.03544919
2028	34.34611001	34.25147975	29.80999221	27.21715926
2029	34.48063928	34.32757652	29.2292091	26.39101221
2030	34.5759179	34.38346442	28.56390111	25.4815813
2031	34.66236687	34.40532487	27.87025399	24.55861866
2032	34.76359044	34.42273974	27.1324492	23.61460635
2033	34.87798126	34.44606391	26.42347156	22.70777584
2034	35.00541287	34.45096285	25.69057104	21.804754
2035	35.15715777	34.4746261	25.02207998	20.98192906
2036	35.28661531	34.47007025	24.36898323	20.20649606
2037	35.44471999	34.48620923	23.78972131	19.50990154
2038	35.61132131	34.5054074	23.22235886	18.8397596
2039	35.75775261	34.5107167	22.67089902	18.20241743
2040	35.88134505	34.49197	22.2054987	17.64690866
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Solar PV and natural gas are reshaping power sector capacity …

Thanks to falling costs and favourable government policies, solar PV capacity is set to surge – overtaking wind by 2025 and overtaking coal in the mid-2030s to become the second largest installed capacity globally, after gas. Gas-fired capacity overtakes coal well before 2030, as countries look to address emissions and air pollution concerns, while meeting flexibility and adequacy needs.

  • Installed power capacity in the NPS
  • Power generation in the NPS
	Coal	Gas	Oil	Nuclear	Wind	Solar PV	Other renewables	Hydro	Battery storage
2000	1142.99277	796.5261604	446.9034441	384.238	17.178885	0.8056559	49.22105105	787.3494156	0
2001	1161.53176	857.9635087	444.3440191	387.116	23.841145	1.092700696	52.42076945	795.6424861	0
2002	1178.77253	953.118875	443.8765981	391.434	30.803945	1.449427256	56.34194052	809.6360991	0
2003	1200.78483	1032.630843	444.0773591	392.136	38.317555	1.977972335	60.01361605	828.7139541	0
2004	1232.10895	1084.2908	437.7829091	396.926	46.819843	3.076437607	62.21075065	850.5143651	0
2005	1282.35613	1128.689139	436.1078931	398.551	58.334832	4.542109354	67.24955211	872.6811701	0
2006	1371.43078	1175.210918	433.7099481	397.731	73.0666	6.100078948	74.4841387	897.5712361	0
2007	1438.10239	1216.895221	431.5899541	399.717	91.531538	8.689297011	79.3232352	927.9672501	0
2008	1503.1098	1257.403639	431.4216531	399.277	114.667727	14.66443871	82.82464529	960.2498231	0
2009	1566.74895	1311.836717	433.5205631	399.029	149.948157	22.5958415	87.77049087	994.080646	0.710866
2010	1628.329519	1370.852966	438.6404551	401.596	180.680994	39.66389644	99.66966089	1026.784803	0.743544
2011	1713.500653	1420.075538	444.4863071	394.129	219.703419	69.74066464	105.9814212	1059.0739	0.816178
2012	1772.576138	1473.350752	441.6267281	395.855	267.865207	99.50273158	115.732538	1092.831081	0.913157923
2013	1821.156142	1512.548369	438.6102581	394.556	300.852974	136.0810084	123.4657671	1136.061361	1.08101869
2014	1889.093867	1574.537682	441.5868341	399.006	348.485092	176.0780784	130.5453211	1174.338466	1.3351038
2015	1963.899891	1614.941119	441.3899561	405.063	416.193417	224.361762	137.9250107	1208.66562	1.90401723
2016	2025.071006	1643.629117	445.9714371	413.813	467.285232	300.1551567	147.176519	1244.49218	2.7390748
2017	2066.73833	1694.772895	446.6065781	412.058	514.803163	397.6328821	155.1424481	1269.511211	3.7355517
2018	2104.633006	1773.837997	435.7102316	418.169	565.6824538	471.6483507	164.3269284	1292.180372	10.3031188
2019	2134.467128	1850.517278	417.4309116	424.662	618.3050176	549.0336068	172.8188945	1316.997687	17.0113917
2020	2146.659704	1910.908526	398.7409874	427.827	674.5333813	632.0901371	180.5554287	1338.466831	23.7306265
2021	2154.684693	1963.808707	386.0349658	432.421	732.3270849	721.3096727	187.5100219	1356.679274	30.7466518
2022	2151.468131	2001.687749	373.7323184	435.332	788.3680886	816.9240899	194.1079617	1380.11231	37.9669051
2023	2139.612156	2040.490014	366.0354684	441.141	840.2368239	916.3673212	200.824777	1403.06658	45.3054503
2024	2135.653957	2074.511273	356.998456	446.47	896.8810664	1013.277815	210.2833281	1432.011014	52.4911933
2025	2130.278924	2112.641318	350.084434	448.303	952.9840951	1109.290321	220.12291	1461.861094	59.8267991
2026	2130.344079	2158.071739	339.2317147	450.372	1010.069164	1204.80769	230.332301	1491.876383	68.5897508
2027	2136.478877	2198.059471	333.5263557	454.4176	1068.087571	1299.793078	240.8889281	1521.044499	76.6685148
2028	2139.038657	2238.326517	324.7569806	461.1726	1127.272212	1394.961736	251.8225794	1549.661667	85.2862323
2029	2144.123783	2285.240955	316.2644675	462.8046	1187.813662	1490.974633	263.2136964	1577.515714	95.2750567
2030	2143.008568	2333.891427	307.431556	463.7266	1249.834126	1588.676825	275.1100774	1604.399014	106.7169207
2031	2149.793466	2367.843332	302.1576549	471.2506	1304.411864	1679.48979	287.5469366	1630.566573	117.2144447
2032	2163.702664	2406.70859	296.8666143	477.9996	1355.77539	1765.610895	300.2674386	1655.896045	128.1790897
2033	2166.477811	2447.721722	291.9615389	483.9096	1405.115854	1851.696775	313.461911	1680.592012	138.3011797
2034	2173.068874	2488.629839	283.7488899	489.6556	1452.996826	1939.958053	327.0744584	1704.700705	149.4330507
2035	2183.864629	2526.328213	278.2470506	495.4646	1497.993029	2032.622645	341.1456398	1728.493928	159.8037577
2036	2194.815925	2565.919992	271.6988319	502.1296	1540.721556	2130.937271	355.6073196	1751.618941	170.2520087
2037	2205.189156	2608.413416	265.285136	507.6306	1583.427455	2230.404958	370.6243407	1774.217377	182.0513177
2038	2215.549247	2652.957977	258.2889678	511.4056	1624.626173	2332.257874	385.7913792	1796.355627	194.1386257
2039	2228.921476	2697.444998	252.4466302	514.6176	1666.255912	2435.602352	401.3551832	1818.060149	206.7007257
2040	2237.818826	2739.822847	246.0564808	518.4856	1707.32331	2539.980472	417.3248159	1839.368706	219.3763257
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	Coal	Gas	Oil	Nuclear	Wind	Solar PV	Other renewables	Hydro
2000	6001.371	2746.709	1211.825	2590.623	31.35	0.99	217.364	2618.251
2001	6020.122	2900.468	1156.892	2637.685	38.455	1.316	221.77	2561.134
2002	6304.609	3102.273	1158.982	2660.778	52.849	1.581	236.59	2628.796
2003	6718.012	3263.583	1167.774	2635.349	64.231	2.017	243.87	2641.58
2004	6944.21	3513.214	1148.027	2738.012	84.427	2.681	262.393	2812.148
2005	7330.893	3701.425	1134.891	2767.952	103.922	3.904	285.295	2934.782
2006	7739.179	3908.497	1053.519	2791.471	133.057	5.504	302.121	3044.648
2007	8202.281	4216.562	1084.156	2719.229	170.839	7.447	323.606	3083.307
2008	8255.235	4370.212	1036.855	2733.085	221.051	11.885	346.67	3213.233
2009	8093.836	4407.76	974.502	2696.18	277.434	20.019	372.034	3267.481
2010	8659.547	4804.806	972.582	2756.288	341.398	32.184	430.586	3445.316
2011	9140.553	4873.068	1074.359	2582.64	436.009	63.164	455.736	3513.999
2012	9183.071	5075.191	1133.922	2460.285	524.124	99.012	489.219	3677.822
2013	9640.898	5030.43	1061.135	2479.106	646.682	139.444	527.676	3809.023
2014	9705.508	5142.785	1020.876	2535.647	718.141	190.167	574.946	3905.902
2015	9543.629	5548.399	970.567	2570.17	838.332	250.221	607.869	3904.66
2016	9574.937	5781.069	925.567	2604.785	957.286	327.837	662.085	4049.301
2017	9858.094128	5855.3476	939.634514	2636.77456	1084.850349	434.6179628	722.2576621	4109.441649
2018	9994.014692	5935.563309	915.4885757	2698.856448	1221.600544	519.5330073	756.9106919	4224.920308
2019	9991.853317	6055.955818	899.5952986	2779.168796	1370.17004	632.00897	809.3915834	4351.853651
2020	9957.666457	6205.004025	871.1260878	2839.614726	1526.838886	751.687462	852.1542034	4433.794567
2021	9933.473388	6337.10373	847.1504901	2897.852496	1685.15373	882.7592019	891.1001461	4497.40847
2022	9923.538429	6462.007187	820.8582496	2933.591096	1842.413172	1024.367072	928.4228719	4568.59857
2023	9897.182261	6566.663333	802.673408	3008.747836	1993.447563	1174.15785	964.1715874	4642.388163
2024	9910.852366	6688.879248	779.3821913	3059.012416	2145.775433	1318.883485	1007.383745	4720.626481
2025	9896.238806	6828.86124	763.1764576	3088.676312	2303.765385	1462.678874	1056.933297	4821.429409
2026	9917.736825	6978.728498	739.5079727	3114.975218	2463.936931	1607.05613	1108.382529	4930.254885
2027	9943.857636	7100.107791	728.0667925	3148.42018	2628.372248	1751.880155	1161.915057	5036.524653
2028	9986.235964	7201.688401	709.3926269	3205.28566	2797.898344	1897.724799	1217.154494	5137.072171
2029	10006.73792	7360.128866	693.92037	3224.67772	2973.629113	2045.784247	1273.891218	5234.213921
2030	10015.84161	7517.356616	675.7421414	3252.70977	3156.877779	2197.378884	1333.259106	5329.57784
2031	10037.52359	7625.991116	662.9971363	3318.95235	3333.386398	2347.568431	1395.865994	5421.975272
2032	10068.35593	7766.837313	646.8108743	3378.35235	3496.861942	2491.792353	1460.167996	5512.489988
2033	10095.71233	7923.83069	629.9635211	3435.06057	3655.102966	2634.504288	1525.316975	5600.964141
2034	10132.88777	8094.188874	610.8850249	3477.50124	3809.681244	2781.033833	1593.259128	5687.83745
2035	10171.96706	8265.450222	597.342188	3520.01604	3959.67652	2935.417942	1664.725817	5773.539776
2036	10206.50963	8416.239829	582.4332242	3580.13898	4105.886715	3100.933026	1735.811772	5858.156321
2037	10252.77092	8575.441741	569.7784627	3639.48126	4252.148654	3275.372427	1808.722833	5939.841671
2038	10297.66061	8736.535134	555.4103133	3666.19491	4398.603984	3457.271813	1885.739827	6020.431872
2039	10323.45068	8906.698461	541.1200072	3695.02231	4544.194643	3646.03309	1963.62405	6100.199825
2040	10335.08322	9070.616909	527.1788387	3725.81931	4690.014753	3839.373172	2044.266247	6178.926196
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… which also means that the power generation mix is evolving (though more slowly than capacity)

Coal remains largest source of electricity generation, though its share falls substantially over time and gas nearly closes the gap. Renewables increase of around 25% up to total 41% in 2040. Hydro remains the largest source of low carbon electricity, followed by wind power and solar PV.

Nuclear increases moderately, with a significant geographical shift. Traditional nuclear champions will see a wave of retirements to 2040 as the industry faces challenges in the leading markets of the United States, Europe and Japan. Meanwhile, a nuclear expansion is led by China, India and Russia in developing nations.

	2040	Potential retirements from 2017	2017	Additions to 2040
United States	44.333	61.07	0	0
European Union	22.42	102.086	0	
Japan	8.179	33	0	0
China	0	0	37	111
Russia	0	0	27.571	11
India	0	0	6.8	32
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Flexibility will become the cornerstone of electricity security …

Building flexible power systems to accommodate the transition to more electrified, low-carbon and digitalised electricity systems of the future will be critical to ensure reliability. Government policies need to consider flexibility as a core component of electricity system design and management.

Flexibility needs are set to increase due to the evolving nature of electricity demand and supply; driven by electrification and other changes in the way electricity is used on a daily basis, greater flexibility may be needed to manage peaks in demand. The rising shares of wind and solar PV increase system flexibility needs to manage the variability of their output.

System flexibility needs can be characterised by a scale of six phases of integration. Moving to higher phases generally increases the need for dedicated practices, policies and investments to manage power systems. For systems in Phase 1 and 2, existing sources of flexibility are capable of meeting any flexibility needs. Beyond these initial phases of integration, targeted investment in advanced flexibility measures is needed to manage the integration of variable renewables. The phase a country is in depends not only on the share of variable renewables in annual generation, but also is influenced by existing flexibility resources and the match between solar PV, wind and demand profiles. Looking ahead, some countries are set to move into uncharted territory where regular periods of excess supply could become the norm.

As countries move up the phase scale, increased demand for flexibility will be met by a range of sources. Today, power plants and transmission interconnections provide the vast majority of flexibility in power systems. Going forward, demand-side response and energy storage technologies, including battery storage, will have a growing role in ensuring energy security.

Investments are needed in the right place, at the right time to keep the lights on

Power sector investment needs to be timely and efficient to ensure electricity security. Government policy will play an integral role in all markets. In competitive wholesale electricity markets, the rising share of variable renewables puts downward pressure on price signals needed for investment, and market reforms may be needed to secure sufficient levels of investment to keep the lights on.

Power plant investment in competitive markets and under regulated frameworks in the NPS 
	Investment
Wholesale market pricing	300.4584023
Distributed generation (retail/regulated tariff)	548.6535499
Regulated networks  and battery storage	2594.790435
Regulated/contracted utility scale generation	3072.579363
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Distributed generation (retail/regulated tariff)	858.0660799
Regulated networks  and battery storage	6078.614036
Regulated/contracted utility scale generation	5557.188365
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In heavily regulated markets, the risk of overinvestment continues, as capacity currently under construction, or in the planning phase, is set to outpace new needs for the system, threatening the affordability of electricity for more than a billion households. At today’s levels, for example, excess capacity would cost households in developing economies close to $15 per year.

	Excess in 2017	Under construction	Planned	Meet demand growth to 2030	Replace retirements
China	110	148.109624	279.79685	451.9644	27.02597981
India	50	63.98515743	157.4120978	207.972	45.85521369
Middle East	100.1254	50.90392493	91.62404865	80.5788	51.32530417
Southeast Asia	45	45.87408967	145.9334102	109.43136	15.74758213
Other developing Asia	19.13684	29.59695257	66.7611892	43.94724	17.08903443
North Africa	22.97356	21.50322402	37.699325	23.20428	11.43670951
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Proper government policies - and market designs - will be critical

The risk of underinvestment in competitive electricity markets threatens the security of electricity supply. Without concerted action and market reform, the lights could flicker and go out on some advanced economies. In re-orienting electricity supply, policy makers must also look beyond technology costs, considering also the value of all the services provided to the system.

Downward pressure on wholesale electricity prices also reduces revenues to all sources of generation. To close the widening gap between energy sales revenue and total generation costs, the need for additional revenue streams is growing and can be delivered through capacity and flexibility markets. For example, energy sales have covered a falling share of total generation costs in the European Union, and this looks to become more pronounced in the future unless CO2 prices rise to above $30 by 2030.

	Energy sales	Rising CO2 price	Other revenue needed
2010	77.46885307	0	22.53114693
2017	57.69405287	0	42.30594713
2025	50.46983277	10.33822146	39.19194577
2030	47.03281672	13.41489561	39.55228767
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