New Energy Outlook 2016

New Energy Outlook (NEO) is Bloomberg NEF's annual long-term view of how the world's power markets will evolve into the future.

By Elena Giannakopoulou and Seb Henbest / Bloomberg NEF / June 13, 2016

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Cheaper coal and cheaper gas will not derail the transformation and decarbonisation of the world’s power systems. From today until 2040, $11.4tn will be invested in power generation. Of that, $2.1tn will be spent on fossil fuels. But an astonishing $7.8tn will be invested in renewable energy.

Total investment in power generation to 2040
Source: bnef.com

This means that by 2040, 60% of the global power capacity will come from zero-emission energy sources.

Share of total power capacity in 2040
Source: bnef.com

On the one hand, weaker coal and gas prices have reduced the cost of electricity from new fossil fuel power stations.

Evolution of coal prices ($/t)
Source: bnef.com

And while we expect gas prices to rise, coal appears to be structurally weak with prices staying low.

Evolution of gas prices ($/mmbtu)
Source: bnef.com

On the other, wind and solar keep getting cheaper. Onshore wind will fall 41% by 2040....

Wind costs to 2040 ($/MWh)
Source: bnef.com

... and solar by 60%. This means these two technologies will be the cheapest ways of producing electricity in many countries during the 2020s and in most of the world in the 2030s.

Solar PV costs to 2040 ($/MWh)
Source: bnef.com

The bulk of the $11.4 trillion will be invested in Asia-Pacific which will add as much capacity in the next 25 years as the rest of the world combined.

Cumulative capacity additions by region
Source: bnef.com

...and half of that will be built in China, which despite its current slow-down will attract $2.8 trillion of new investment. Around 73% of capacity additions in China will be renewables. Coal capacity peaks in 2020 and coal generation in 2025.

China total installed capacity by technology (GW)
Source: bnef.com

India is facing a rapid increase in electricity demand due to economic and demographic expansion and growing electrification. Coal will remain the dominant fuel through 2040 but solar too will begin to play a larger role, accounting for 29% of new power capacity.

India total installed capacity by technology (GW)
Source: bnef.com

In the US, while gas will make up almost a third of capacity in 2040, renewables will see the bulk of investment over the next 25 years reaching 50% of the power fleet in 2040 from less than a fifth today.

US total installed capacity by technology (GW)
Source: bnef.com

In Europe, although nuclear retirements to 2025 slow the decline of fossil fuel generation, the region sees significant decarbonisation with renewables rising to 70% of generation in 2040. Solar accounts for almost half of all new capacity with rooftop systems accounting for the majority in the short to medium term.

Europe total installed capacity by technology (GW)
Source: bnef.com

The rise of electric vehicles adds over 2,700TWh or 8% of power demand to 2040, offsetting the impact of ever better energy efficiency and pushing battery costs down 76%.

Power demand from EVs to 2040 (TWh)
Source: bnef.com

Despite a global renewables boom, fossil fuels will maintain a 44% share of generation in 2040 - down from two-thirds in 2015. Some 963GW of new coal-fired capacity will be added to 2040 almost exclusively in developing countries where supply is relatively cheap and climate change policies weak or yet to be implemented.

Electricity generation (TWh)
Source: bnef.com

Emission reductions in EU, US and China are offset by steep increase in India and SE Asia. By 2040 global power sector emissions are still 5% higher than today. To bridge the gap to a two-degree emissions trajectory we would need another $5.3 trillion of investment in zero-carbon energy to 2040.

Power sector CO2 emission trajectories to 2040 (Mt)
Source: bnef.com

Explore more New Energy Outlook 2016

Access the executive summary here.