Selected country examples
Of the peer groups mentioned previously, selected examples of countries and regions are provided below, based on ETI results and dialogues with key stakeholders in their respective energy systems:
- China: a G20 member within the leapfrog category. It has the largest population globally, the highest primary energy consumption (125,000 PJ)92 and the highest carbon emissions from the energy system (9,100 Mt CO2).93
- India: a G20 member within the emerging category. It has the largest share of people globally who lack electricity access (approximately 240 million)94 and, together with China, it is expected to be the largest contributor to GDP and energy demand growth over the next two decades.95 It has also been the biggest driver of incremental CO2 emissions over the last three years.96
- Europe: a region that comprises a large number of high-income countries primarily part of the leading countries category. It includes many countries with high GDP per capita, and as a region accounts for the third highest primary energy consumption (71,500 PJ) and carbon emissions (3,400 Mt) globally.97
- Saudi Arabia: a G20 member within the emerging category. It embarked on its transition journey recently, is the largest oil exporter globally and a prominent member of OPEC.
- Kenya: a country within the leapfrog category. It shows the highest readiness scores among Sub-Saharan countries, whose population faces energy access challenges.
China accounts for 15% of global GDP, 18% of the global population, 30% of global carbon emissions and has been the biggest driver of global energy demand growth over the last 10 years.98 Within the ETI, China ranks in the bottom performance quartile and second readiness quartile, making it part of the leapfrog category.
Between 2013 and 2018, China improved its performance score by 2.5 percentage points, mainly through better energy intensity, increased diversity of its primary energy supply through more natural gas, hydro, nuclear and renewables, and reduced import costs.
China’s security and access score ranks 5 percentage points above the global average, its economic development and growth score is 10 percentage points below average and its environmental sustainability score is 30 percentage points below average, making the latter the biggest improvement area. The low environmental sustainability score is mainly due to China’s dependency on coal as the primary energy source (73% of electricity generation), which results in low performance of its CO2 intensity and particle emissions.99
China’s transition readiness (rank: 46/114) indicates that it has made large efforts to prepare itself for the energy transition, despite its relatively unfavourable energy system structure (rank: 109/114). Of special note are its systematic regulation and political commitment (rank: 2/114) – reflected in an ambitious five-year plan – and large financial investments to support the improvement of energy efficiency and development of renewable energy (rank: 51/114). China is already investing over $100 billion domestically in renewables every year and has become the largest investor in renewable energy overseas, strengthening its position among the leading countries in renewable energy supply chains.100 In 2016, China accounted for more than 40% of global employment in the renewable energy industry.101
However, the rapid development of renewable energy has outpaced electricity demand and led to inefficiencies in China’s power system, creating challenges for the different market participants.102 Countries that faced similar challenges in the past could serve as case examples of how to adapt market design and business models.
India is one of the largest consumers of energy (36,000 PJ),103 and its demand is projected to grow. India’s energy needs are primarily met by fossil fuels (74% of TPES),104 with implications for environmental sustainability (score: 40%) and increasing energy import costs. Furthermore, a considerable share of India’s population still lacks access to electricity and clean cooking fuel. In the ETI, India ranks in the third performance quartile and third readiness quartile, making it an emerging country that is approaching the leapfrog category.
Between 2013 and 2018, India improved its performance score by 5.6 percentage points, mainly with improved energy access, reduced subsidies and reduced import costs. India’s economic development and growth score ranks 15 percentage points below average, its environmental sustainability score ranks 9 percentage points and its security and access score ranks within the average.
Considerable challenges remain in India’s transition towards a secure, sustainable, affordable and reliable energy future. Recent initiatives to improve electricity access have experienced some success and the outlook is positive;105 however, the road to continuous access to power and clean cooking fuel for all is long. Also, challenges from technical and commercial losses remain. The results of recent initiatives on separating feeders for agricultural supply and reviving the fiscal health of distribution companies are still pending.
India has the largest government-mandated renewable energy programme, with a target of 175 GW renewable energy capacity by 2022, and it announced plans to shift completely to electric vehicles by 2030. Along with significant measures on domestic energy efficiency, these initiatives can also target environmental sustainability and import independence.
The Indian renewable energy landscape shows promise, with subsequent renewable energy auctions clearing at prices lower than those in long-term thermal power purchase contracts. However, this has also cast uncertainty on the economic viability of thermal power plants, which account for 58% of India’s primary energy supply.106 Significant investment in evacuation infrastructure and strong regulatory frameworks are needed for better grid stability and improved performance.
The EU, Norway and Switzerland demonstrate how a region can improve an energy system through the deployment of new technology and collaboration. Approximately 75% of European countries are part of the leading country category, and 15 of the top 20 countries in the ETI are European.
Between 2013 and 2018, all European countries improved their performance scores, resulting in an average economic development and growth score of 63%, an environmental sustainability score of 54%, and a security and access score of 84%.
Since 2010, EU28 greenhouse gas emissions were reduced by 9%107 and the energy intensity of European OECD countries ranges 27% lower than the OECD average.108 Europe’s power mix has a larger share of zero-carbon emitting generation technologies (>50%) than other large industrial nations.109
However, with an environmental sustainability score of 54%, European countries still have improvement potential. Reaching the ambitious COP21 decarbonization targets will require further effort (see the Netherlands case example). Moreover, energy prices are already among the highest globally and Europe remains dependent on fossil fuels and scarce resources from abroad.110
In the New Concept for Europe progress report, the World Economic Forum identified several opportunities for Europe to capture opportunities from the energy transition by empowering digitally enabled consumers and citizens and by using Fourth Industrial Revolution digital tools to optimize and balance electricity, heating, transport and other energy networks. The goal described is for Europe to power itself in a green, affordable and secure manner to achieve the Paris Climate Agreement targets by developing an integrated, connected and sustainable energy supply and by enabling smart energy and resource consumption. Concrete methods mentioned include the acceleration of the phaseout of subsidies for high-emission energy sources, integrated and more efficient heating, the introduction of policies and standards promoting zero-emission buildings by 2030, and open access to energy data to foster new energy business models.
Saudi Arabia is the largest oil exporter globally and possesses around 22% of the world’s petroleum reserves. Around 85% of its export earnings come from the oil and gas sector, which also accounts for about 50% of its GDP.111 For Saudi Arabia and countries whose economies are reliant on the energy sector, an effective energy transition is important, as they are expected to face economic, fiscal and employment challenges as a result of the global push towards emission reductions.
Although many countries have realized they can improve their readiness by diversifying their energy mix and shifting capital to avoid exposure to uncertainty in oil demand and oil price volatility, they are at different stages in their preparations for energy transition.
In the ETI, Saudi Arabia ranks in the third quartile for system performance and transition readiness. Security and access (rank: 29/114) and economic development and growth (rank: 40/114) are driving performance, while the biggest challenges lie within environmental sustainability (rank: 111/114). High carbon intensity, per capita emissions and high particle emissions are major challenges.
To prepare for the transition, the Kingdom has established ambitious targets as part of its Vision 2030, including a clear roadmap for renewable energy development, the diversification of its economic activity and the participation of foreign stakeholders in the energy system. However, it will take time for the results of their energy transition to be fully reflected in the ETI scores.
Box 7: Employment in fossil fuel industries and transition readiness
According to the International Labour Organization statistical division, ILOSTAT, countries with a higher share of employment in fossil fuel industries112 show lower levels of transition readiness in the Energy Transition Index. A higher share in fossil fuel employment is expected to create further transition challenges in the form of additional stakeholder engagement requirements and potential long-term labour market implications. Such challenges seem to impact the overall transition readiness for some countries.
However, the correlation is weak overall and shows three major outliers (Norway, Qatar and Brunei). Also, China, the country with the highest absolute number of people employed in fossil fuel industries, has the biggest share of jobs in renewable energy, which shows that it is possible for a fossil fuel energy sector and a new energy sector to complement each other.
Kenya is the fourth largest economy in Sub-Saharan Africa and has progressed in providing access to electricity for its people in recent years.113
Within the ETI, Kenya ranks in the bottom performance quartile and top readiness quartile. While Kenya scores 15 percentage points higher than average on environmental sustainability (rank: 20/114), it shows 14 percentage points lower performance on economic development and growth and 39 percentage points lower performance on security and access (rank: 108/114). Its comparatively high performance in environmental sustainability is driven by the low-carbon intensity of its energy consumption, supported by a rich source of low-carbon energy in the form of geothermal, hydro and, increasingly, solar and wind power. Challenges within security and access are mainly driven by the energy access and quality of supply categories.
However, the trajectory is promising: between 2011 and 2014, Kenya managed to almost double electricity access from 25% to 46%. For countries with similar challenges, Kenya can be viewed as a good example of strong regulatory frameworks supporting energy access policy,114 which incentivize private stakeholders to invest. Mini-grid deployment is supported by clear standards and last-mile connectivity by a grid densification programme, which is funded through connection fee subsidies.115
Box 8: Using solar home systems to improve electricity access in rural areas
Improving access to modern forms of energy has a positive impact on the entire energy system, not only the security and access dimension. For instance, replacing kerosene, candles or biomass with cleaner forms of energy reduces the per-unit cost, addresses health implications for its users and supports economic development.
Solar home systems offer a quick and relatively cheap solution to provide access to remote rural areas. McKinsey identified key elements to describe countries’ attractiveness for a solar home system rollout: 1) off-grid regulations; 2) a business enabling environment; 3) logistics and channels; 4) affordability and willingness to pay; and 5) ease of payment.