Full report
Published: 11 May 2022

Fostering Effective Energy Transition 2022

1.2 Energy security and access

High energy prices and new risks of energy shortages, resulting from the fast COVID-19 economic recovery and the war in Ukraine, have forced a reprioritization of energy security. Countries can strengthen energy security by diversifying their fuel import partners in the short term and diversifying their energy mix with low-carbon alternatives and improving energy efficiency in the long term.

The prospect of robust progress hinges on the ability to manage short-term shocks.

According to the latest evidence from the Intergovernmental Panel on Climate Change (IPCC), global emissions need to peak by 2025 to keep the target of 1.5°C alive. The reconfiguration of the entire energy system, including the underpinning fuels, technologies, markets, and geopolitics, may not proceed smoothly.48 The prospect of robust progress hinges on the ability to manage short-term shocks, especially those that pose risks to the reliability
and affordability of energy. The IEA defines energy security as the “uninterrupted availability of energy sources at an affordable price”.49 As measures to combat climate change accelerate, adequate and affordable access to energy will be critical to the continued prioritization of environmental policies. In the long run, energy security means securing the energy supply needed for a country’s economic development and growth. In a world aiming to reach net zero emissions by mid-century, long-term energy security is closely tied, if not constrained, by national sustainability ambitions.

Energy market volatilities and geopolitical events over the past two years have elevated energy security risks. Following a period of low investment in legacy assets,50 a faster-than-expected economic rebound from the COVID-19 pandemic51 strained the energy supply chain,52 leading to concerns about the availability of gas for winter heating,53 industrial activity slowdown54 and pressure on the fiscal budgets for energy subsidies.55 Indeed, the record-high energy prices took countries by surprise and spotlighted their severe reliance on imported fossil fuels as well as the strong interdependence of their domestic electricity prices with global gas markets.56

High prices created heavy financial pressure not only on households but also on businesses of all sizes, leading to social protests and industrial production cuts in several countries.57 Additionally, in 2021, intensifying extreme weather events pushed power grids to the breaking point,58 which led to severe blackouts affecting 4% of the world’s population.59 And, currently, energy security concerns arising from the war in Ukraine are forcing a fundamental rethink of energy and foreign policy, even in countries not reliant on imported fossil fuels from Russia.

Bilateral energy trade among countries, globally integrated energy markets, and technology standards for mid-stream and downstream infrastructure are among the core building blocks of the current geopolitical landscape. Resource endowments aside, the spatial distribution of reserves vis-à-vis demand centres and infrastructure considerations including pipelines, refinery configurations, etc., necessitate even resource-rich countries to rely on imports, a case in point being Canada.60 Hence, complete energy independence may not be feasible for countries in the near term. While a decarbonized future energy system can provide energy security dividends due to the localized resource abundance of low-carbon energy sources, ensuring energy security and affordability through the transition will require fossil fuels. Many countries either do not benefit from natural energy resource endowments required to meet their energy needs or are unable to exploit them for their own use due to political, technological or financial reasons. The essence of the energy security challenge in these countries is typically dual: countries’ insufficient diversification of their energy mix or insufficient diversification of energy import partners, or both. As an example, Europe relies on natural gas for 19%61 of its power generation and 38-41%62 of its residential heating, and 45% of the EU’s consumed natural gas is imported from Russia.63 A majority of countries continue to rely on a handful of trade partners to meet their energy requirements (Figure 5).

Figure 5: Country fuel imports diversification

UNCTAD, World Economic Forum and Accenture analysis
Source: UNCTAD, World Economic Forum and Accenture analysis

Eleven of 34 advanced economies are reliant on only three trade partners for over 70% of their economy’s fuel imports. Similarly, 10 in emerging Asia, 8 in emerging Europe, 27 in Latin America and the Caribbean and 26 in Sub-Saharan Africa are heavily reliant on just three countries for a majority of their fuel imports. These are all at-risk countries whose energy supply chains could potentially experience disruption in the face of adverse climatic events, supply shortages or geopolitical crises. The lack of diversity in imports results in the countries’ energy system having less cushion to deal with disruptions in supply from a given partner, which eventually could precipitate into a national security concern.

"An energy mix, dominated by low-carbon energy systems, is more likely to have a national or regional footprint, implying that a convergence of energy security and sustainability."

As nations continue to evolve their energy security priorities in light of the rising uncertainty, governments’ role in ensuring energy security is not straightforward, as countries with different energy system structures may follow different pathways. What differentiates today’s energy crisis from past crises, though, is the fact that scalable alternative technologies and renewable energy sources are available today, which enables policy-makers to facilitate a more integrated, efficient and flexible energy system. Whenever possible, countries can consider strengthening energy security by diversifying their fuel import partners in the short term as well as diversifying their energy mix with the development of domestic renewable and other low-carbon energy in the long term, driving down both the need for energy imports and strategic geopolitical dependencies.64 There are reasons to believe that diversification will remain critical in increasingly decarbonized energy systems, where high-carbon energy systems powered by fossil fuels, at least in the coming decades, will continue to cohabit with low-carbon energy sources.

A future energy mix, dominated by low-carbon energy systems, such as solar, wind, hydrogen and biomass, is more likely to have a national or regional footprint, implying that a convergence of energy security and sustainability could be possible. Countries shifting towards more decarbonized domestic energy sources are likely to be more self-reliant and less dependent on the global trade of energy, especially if coupled with efficiency measures that reduce the overall energy needs.

The impending surge of economies’ electrification from the rise of renewables is expected to bring in a different set of security-related challenges. Crucial among them would be ensuring the reliability and efficiency of national and cross-border electricity grids. In particular, as the share of wind and solar increases in countries’ energy mix, electricity grids will require systemic upgrades to accommodate these variable renewable energy sources. But going forward, countries will also need to think strategically about the technology mix and geographical spread,65 aside from upgrading and redesigning their grid infrastructure. As a result, grid modernization is also emerging as a key priority for policy-makers and is one of the focus areas of new policy packages, such as in the United States66 and EU,67 for both energy security and energy transition imperatives.

The transition to a decarbonized future energy system lowers the security risks from geopolitics of fossil fuels but can also create new potential concerns. Declining fossil fuel demand may further concentrate the remaining supply as higher cost producers exit the market. Additionally, the transition to clean energy depends heavily on access to minerals, such as lithium, cobalt, nickel, copper, etc., to manufacture solar panels, wind turbines and batteries. While the demand of these minerals is expected to grow six-fold for a transition to net zero by 2050 according to the IEA,68 the production of transition minerals, such as cobalt, lithium and graphite, is more concentrated than that of fossil fuels oil and gas (Figure 6). While a complete phase-out of fossil fuels would reduce countries’ energy mix diversification, an increased reliance on renewable power, battery storage and other low-carbon sources could also pose new energy security risks.69

Figure 6: Production concentration of energy commodities

bp’s Statistical Review of World Energy 2021, https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html
Source: bp’s Statistical Review of World Energy 2021, https://www.bp.com/en/global/corporate/energy-economics/statistical-review-of-world-energy.html

Furthermore, as an increasing number of countries, including the United Kingdom,70 the United States,71 Japan,72 India73 and China,74 reconsider the role of nuclear energy due to its low emissions and baseload operational profile, security risks from design specifications75 and nuclear fuel supply chains can arise.76

As the transition remakes the energy system, energy security concerns also require upfront risk mitigation measures. Investment in contingency measures, such as strategic reserves for petroleum and storage infrastructure for natural gas, can reduce the impact of disruptions in the supply of these fuels through the transition period. Similarly, considering the criticality of transition minerals’ supply to support the manufacturing of the renewable energy components necessary for the energy transition, investing sufficiently in responsible mining, diversifying sources of supply and strategically stockpiling minerals in some cases can ensure a resilient minerals supply chain.77 Furthermore, considering the energy security premium, maintaining some legacy assets through market mechanisms that support reserve capacity might be required to address supply demand imbalances during the transition.

"Maintaining some legacy assets through market mechanisms that support reserve capacity might be required to address supply demand imbalances during the transition."

While governments across the globe continue to focus on the critical aspects of their countries’ energy security, it is vital that they sustain ongoing efforts to provide energy access to those in need. Even before the pandemic arrived, the world was lagging in providing universal access to electricity and clean cooking fuel.78 As of 2019, 759 million people do not have access to electricity and over 2.6 billion people do not have access to clean cooking fuels.79 The rate of progress reveals that the world is not on track to achieve the targets for universal access, and the impact is more acute for the most vulnerable countries that were already lagging.

Emerging and developing economies are likely to suffer longer and more severely from the economic impacts of the Covid-19 pandemic, exacerbating hunger, poverty and inequality worldwide.80 Early evidence indicates that the pandemic might also have dismantled some of the steady progress towards universal energy access. In 2021, the number of people without access to electricity increased by 2% to 768 million.81 The lack of access to energy is a constraint in delivering timely and adequate healthcare and vaccination programmes. Only 28% of healthcare facilities in Sub-Saharan Africa have access to reliable electricity,82 making basic health services in some rural communities inaccessible.

Delivering universal energy access by 2030 remains a key UN Sustainable Development Goal (SDG) with the potential to better the lives of millions. However, the COVID-19 pandemic has significantly damaged ongoing efforts as companies working on providing off-grid solutions continue to suffer from supply chain disruptions.83 Achieving the UN’s seventh SDG also requires large investments, to the tune of $20 billion84 annually to 2030 in Africa alone, yet fiscal implications of economic recovery programmes tend to indicate that valuable resources are instead being diverted from energy access programmes in the current context.

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