The Big Number

Monday 10 July 2023

Excitement at the raucous growth of global wind and solar is well justified, but their growth rate alone is not the only number that matters. Just released annual data from EI Statistical Review shows the trailing five year growth rate of wind and solar generation has bumped up again, from 14.7% in the previous period to 16.6%. That’s awfully impressive given that both technologies have been scaling hard for a while, since 2010. Now, from a bigger base, wind and solar have added an incredible 514 TWh, advancing from 2913 TWh in 2021 to 3427 TWh in 2022. Some context: the United Kingdom, with a population of 67 million people, consumed just 326 TWh of electricity last year. When you start growing new power supply in volumes that exceed the power needs of whole nations, you’ve hit the big time. Solar in particular has entered a kind of insane mode, as PV production capacity explodes, and is expected to wow the world the next several years. And offshore wind—which captures far more plentiful wind supply—is also driving growth and it too will throw off amazing gains in the years ahead.

Let’s take a look at how that growth may play out. While the chart below may seem like an example of irrational exuberance, the projection to the year 2030 simply applies that 16.6% compound annual growth rate (CAGR) to the final seven years of this decade. Yes, The Gregor Letter is well aware of the classic constraint that reliably sets in eventually, curbing growth rates as the underlying system grows larger. Got it. But the growth rate slowdown of wind and solar generation probably doesn’t come until next decade, as many domains across the world are still just getting started and costs for wind and solar continue to fall—not always smoothly, there are bumps—but adhere to the trend. The result: it’s quite plausible the two electricity sources, working as a team, triple output by 2030.

It’s easy to be swept away by such projections, and it’s further tempting to become bullish about wind and solar’s ability to finally eat into existing fossil fuels in global power. But it seems of late that there’s another number, a much bigger and perhaps more important number, that is insufficiently addressed: and that’s total demand in global power. And in particular, its growth rate.

Advocates of clean generation growth chant a mantra: electrify everything. That’s rational. Wind and solar are wildly efficient compared to fossil fuels. And the more you install them in global power, the more efficient global electricity becomes. From a macro view, this is not only the heart of the current energy transition, but the process portends a kind of deflationary boom, in which the cleanest energy is the cheapest, and can be added quickly as demand grows. It is after all the open declaration of transition to move everything, from transportation to steelmaking, over to the electrical grid. The energy savings will be enormous, freeing up capital along the way that will keep the process moving forward. But there’s another outcome to consider: big growth in global power.

How shall we model that total system growth? For example, if we take the trailing ten year CAGR of global electricity, currently at 2.5%, and project this forward, then last year’s 29,165 TWh generated will grow to 35,551 TWh by 2030. The system itself, growing at a lower rate from a much higher base, advances by 6,386 TWh. Wind and solar meanwhile, using the projection from their own chart, advance at a high rate from a lower base, growing by 8,237 TWh. And voila—happy news—wind and solar would not only cover all marginal growth in the system, but would finally eat into underlying fossil fuels. But so much depends on that system growth rate. And 2.5%, over the past decade, is probably too low for the decade to come.