Head of Energy and Basic Industries and Member of the Executive Committee, World Economic Forum
Managing Director, Accenture Strategy – Energy
This report marks the fifth annual edition of the global Energy Architecture Performance Index (EAPI), which examines the progress of the global energy transition – that of moving towards more sustainable, affordable and secure energy systems – by benchmarking the energy systems of 127 countries.
During the World Economic Forum Annual Meeting 2012 in Davos-Klosters, Switzerland, executives of the world’s largest energy companies, policy-makers and thought leaders from across the energy value chain were asked: To what extent do you expect global energy systems to change over the next ten years? An overwhelming 90% expressed the belief that significant change would occur across energy architectures around the world, and nearly one-third predicted a radical shift in the way energy is sourced, transformed and consumed.
Five years on and at the midway point, the world has indeed witnessed unprecedented structural changes in the global energy system, as evidenced across the three sides of the “energy triangle”:
Economic growth and development: World energy consumption has continued to grow since 2012, albeit at a slower rate than seen in the previous decade. Much of this growth has been driven by developing countries, whose development is founded on energy. The economics of producing this energy have experienced significant change. The average price of oil in 2016 was 60% lower than five years ago.1 The emergence of unconventional oil, rising energy efficiency and slowing growth in emerging markets contributed to a sustained supply glut and a downtrend in prices starting at the end of 2014. In response, planned global upstream capital spending was cut by over 30%, 2 with some predicting a potential hydrocarbon shortage as a result. By 2015, the basket of the world’s top 20 oil and gas companies had lost a third of their market value (1)(2). Contrastingly, 10 of the world’s biggest utility companies have seen their combined market capitalization increase by over 26%. 3
Environmental sustainability: Global power markets are transforming in favour of sustainable infrastructure. The share of solar in world power generation has almost doubled every two years since 2000, and every four years for wind. With each doubling, the cost of solar falls 24% and that of wind, 19% (3). These trends suggest a permanent shift in the energy mix of the future, marked by a decline in coal consumption, the rising importance of natural gas and renewables, and improved energy productivity in major economies, such as China and the United States. Growing electrification of the world’s secondary energy supply, and the digitization of the grid, are indicative of a shift in energy systems and their sustainability. Nowhere is electrification more prominent than in the growing market for electric vehicles; pre-orders for Tesla’s new model in 2015 broke the record for the single biggest one-week product launch in history (4).
In November 2016, the Paris Agreement on climate change came into force – a landmark moment for the international community committed to collectively accelerating the transition to a clean-energy economy. The adoption of the United Nations 2030 Agenda for Sustainable Development and the Sustainable Development Goals also signalled renewed emphasis on the need for affordable, clean energy.
Energy access and security: Many countries have set forth ambitious plans for their new energy architectures, aiming to take advantage of technological developments and diversify the composition of their supplies to meet rising energy needs and increase security. Countries have increasingly looked to drive security through exploiting indigenous renewable and fossil fuel energy sources. The United States’ shale boom has placed the country in a position where it is expected to become a net exporter of gas this decade, having lifted its 40-year ban on crude oil exports in 2016. Liquefied natural gas (LNG) has gained share in the world energy market, coinciding with regional shifts in trade and historical importers becoming exporters, and vice versa. The emergence of a more flexible global market is further signalled by almost a third of LNG now trading on the spot market, as compared to almost exclusively on fixed-term contracts in the past. The oversupplied market has placed more power into buyers’ hands, with significant impact on countries’ supply mixes, diversification strategies and trading relationships. For instance, alongside rising domestic energy demand and threatened export revenues, Saudi Arabia, the world’s largest oil producer, has set diversification goals in its 2030 Vision.
Below the surface of the momentous shifts of the past five years, the energy system has started to turn, much akin to a colossal tanker pointing in a new direction but still very far from its destination. Although many countries have made important leaps forward, average performance of countries on the index has been generally sluggish, increasing by less than two basis points over the last five years. The EAPI reveals that countries continue to face residual challenges as they look to make progress on their energy systems, complicated by unforeseeable factors and market instability. Overall global economic recovery has been slow, the Fukushima Daiichi power plant disaster rattled public opinion and stalled prospects for nuclear energy, and low oil prices have slashed investment. Moreover, energy supply spending is at its lowest level since 2010 (5).
The composition of the world’s energy consumption changed very little from 2010 to 2014. A 1.4% increase in renewables (including hydropower and biofuels) over this period contrasts with slight decreases in liquid fuels and natural gas, while coal consumption increased by 0.2% (6). The rise of renewables in the electricity sector has been more pronounced, as they overtook coal as the world’s largest source of power capacity, although not generation, in 2016 (7). Access to electricity remains a major challenge; over 17% of the world’s population still has no access, and many more suffer from poor quality of supply (8). While global investment in renewable energy has risen, investment in developed countries has declined since peaking in 2011 (9). Much work remains to meet the ambitious targets ratified in the Paris Agreement following the United Nations 21st annual Conference of the Parties (COP21). In March 2016, and for the first time since records were kept, global levels of carbon dioxide were sustained above 400 parts per million for one month (10).
Looking ahead to the next five years, and with many conflicting scenarios around the demand for energy, the transition to a more sustainable, affordable, secure and inclusive energy system has taken on a pronounced urgency and immediacy. The digitization of the economy and the energy system will be a boon for energy-sector actors to leverage in order to drive the transition, although it will also lead to new complexities requiring management, not least from a security perspective. Managing the transition to a new energy architecture is not easy. The imperatives of the energy triangle may reinforce or act in tension with each other, forcing difficult trade-offs to be made. As nations contemplate how to respond to changing energy dynamics and implement global commitments, this year’s report highlights the lessons learned from top performers on the EAPI and presents a guide for steering energy systems through transition.
Ambition of the Global Energy Architecture Performance Index
The EAPI, developed by the World Economic Forum in collaboration with Accenture, looks at trends and the real performance of countries’ energy systems. Since its launch five years ago, the EAPI has contributed to the global benchmarking of energy systems, highlighting topical energy issues and providing guidance on making energy transitions more effective. This year’s report includes the findings from benchmarking 127 countries on 18 indicators covering contribution to economic growth and development, environmental sustainability, and energy access and security.
Like any index, the EAPI cannot fully reflect the complexity of energy systems or of managing energy transitions. It can, however, serve to benchmark the performance of national energy systems, providing a basis for comparison across nations. The EAPI offers the latest available global energy data, aiding policy formation by providing a reliable indicator of strengths and target areas for improvement.