IEA Flags Supply Side Risks For Global Energy Security

The global energy landscape, as detailed in the World Energy Outlook 2024, highlights the challenges and opportunities of transitioning to a clean energy future amidst growing geopolitical risks and economic uncertainties. With events like the conflicts in the Middle East and Russia’s war in Ukraine, the global energy market’s fragility is apparent, influencing both traditional and clean energy sectors. This International Energy Agency (IEA) report emphasises the need to balance the clean energy growth with energy security.

The Evolving Concept of Energy Security

Historically, energy security meant ensuring stable supplies of oil and natural gas. The definition has broadened in recent decades as it now includes securing supply chains for critical minerals essential for renewable energy technologies. For example, lithium and cobalt are vital for battery production. The demand of these key minerals is projected to increase by over 300 percent by 2030. Extreme weather events, driven by climate change, also threaten energy infrastructure, making a resilient and diversified energy system essential.

Governments have responded with significant financial support, allocating USD 2 trillion towards clean energy between 2020 and 2024. This support, combined with falling costs of renewable technologies like solar panels which have dropped from 0.18 million USD per MW in 2015 to 0.08 million USD per MW in 2023, offers a dual benefit of reducing reliance on fossil fuels and enhancing energy stability.

Geopolitical Risks and the Need for Diversification

The IEA report also highlights that geopolitical tensions, particularly around critical supply routes like the Strait of Hormuz – responsible for 20 percent of global oil supply – pose risks to energy security. A disruption on this front could have severe global consequences. Thus, there is an urgent need to accelerate clean energy transitions.

Currently, China dominates the supply of essential components for solar PV and batteries, holding over 70 percent of global manufacturing capacity. This concentration presents a vulnerability. Hence, diversifying supply chains and developing regional manufacturing capacities are crucial. The IEA’s scenarios suggest that, to meet global targets, solar and wind capacities need to reach 10,000 GW by 2030, a significant increase from the current 4,250 GW.

Electricity Demand Surge and Clean Energy Integration

The years to come will witness substantial rise in electricity demand. Global electricity demand is expected to increase significantly, with a projected rise equivalent to the consumption of the ten largest cities each year. In China alone, electricity demand is anticipated to exceed that of all advanced economies combined by 2030. 

To meet this surge, the clean energy sector must rapidly scale its capacity. In 2023, over 560 GW of new renewable capacity was added globally, yet fossil fuels still met two-thirds of the increase in energy demand.

By 2030, low-emission sources, led by renewables, are projected to make up 40 percent of electricity generation globally, with solar PV and wind accounting for nearly 60 percent by 2050. To manage this, investments in infrastructure and energy storage solutions are essential, ensuring grid stability during peak demand or extreme weather.

Policy, Investment, and the Path Ahead

Emerging markets and developing economies account for two-thirds of the global population but only receive 15 percent of clean energy investments. To address this disparity, international cooperation and policy support are essential. Without transparent policies and risk mitigation mechanisms, these regions face higher capital costs, limiting their ability to deploy clean energy solutions effectively.

In 2023, renewables provided 30 percent of global electricity, marking a significant shift. However, fossil fuels still accounted for 80 percent of total energy demand. The report suggests that clean energy investments need to double from their current levels of USD 2 trillion annually to accelerate emission reductions.

Achieving Balance Through a Comprehensive Approach

To balance clean energy growth with energy security, a comprehensive approach is essential. Key recommendations from the IEA include:

Diversification of Supply Chains: To mitigate the risks associated with geopolitical and supply chain concentrations, countries must develop regional production hubs for solar PV and battery components.

Increased Investment in Infrastructure: Addressing the gap in emerging economies requires targeted policy measures that reduce investment risks and incentivize private sector participation.

Focus on Critical Technologies: The report identifies seven key technologies—solar PV, wind, nuclear, electric vehicles, heat pumps, hydrogen, and carbon capture—that are crucial for reducing CO2 emissions and enhancing energy security.

By scaling these technologies and ensuring investments in infrastructure, the world can move towards a secure, low-emission energy future. With the right policies, clean energy growth and energy security can become mutually reinforcing, creating a sustainable global energy system.

The report discusses the risk of higher costs for consumers associated with renewable energy transitions. Specifically, it mentions that energy transitions, while necessary for long-term sustainability, could saddle consumers with higher prices if not managed properly. This risk is especially pronounced in regions where energy policies focus heavily on expanding renewables without adequate support for consumers or sufficient infrastructure development to manage the increased costs​.

The Risk of Higher Prices for Consumers

While the transition to clean energy is essential for long-term sustainability and reducing emissions, there is a risk of saddling consumers with higher costs under the banner of energy security. The World Energy Outlook 2024 highlights that, despite government efforts to support clean energy growth, many regions face challenges related to the affordability of renewable energy solutions. For example, the European Union’s early investments in solar and wind during the 2010s led to a significant rise in electricity prices—nearly 60 percent higher than in the United States between 2019 and 2023​.

This scenario is not isolated. In emerging markets and developing economies, the upfront costs of renewable energy technologies, coupled with high capital costs due to limited private investment, often translate into higher prices for consumers. Without targeted policy measures and support mechanisms, the shift towards renewables might burden households with increased energy bills, even as global emissions decline. This underlines the need for balanced strategies that prioritise both sustainability and affordability, ensuring that clean energy growth does not come at the expense of consumers