The global economy is moving towards high electrification
Today grid power supplies just over 20% of global final energy demand. As of 2017, total non-hydro renewable power reached 8.4% of total power generation (12% in OECD countries compared to 6% in non-OECD countries). By contrast, coal, natural gas and oil currently supply over 60% of power generation globally, with almost 40% coming from coal.
This is all about to change. The rapid deployment of low-cost renewable energy is a huge milestone in the energy transition. Forward-thinking policy and technological innovation have generated favourable market economics, sparking a new revolution that is just beginning to unfold. A country like India, where coal is still prevalent, will be able to generate 35% of a fast-growing power demand from solar and wind by 2030 at no extra cost for consumers.
But economic growth, combined with the expected electrification of a wide range of activities in the economy which are currently powered by fossil fuels (in particular the switch to electric vehicles in road transport and to electric heating in buildings), will cause global electrical power demand to boom: it is expected to at least double by 2040 and could increase by a factor of five by 2060 as new technologies will enable the electrification of a wider range of applications, such as high-temperature heat in industry, pushing power supplies above 65% of global final energy demand.
This means that, within the next two decades, we have to simultaneously replace current power generation from coal, natural gas and oil with zero-carbon sources, while doubling the existing output of electricity using, again, zero-carbon power sources. This two-fold challenge – doubling the output of electricity and making it 100% clean – is one of the greatest tasks for humanity, and it will require all economically viable sources of clean energy to reach maximum deployment capacity. To put this in numbers, global renewables (excluding hydro) today produce 2,500 TWh per year. Renewables and zero-carbon power sources would need to be deployed sufficiently fast to cover a total projected electricity demand of around 40,000 TWh by 2040 – a 16x increase in the span of 20 years and a 40x increase by mid-century. Meeting this target would require, on average, that every year from now to 2040, enough clean electricity capacity is installed to serve an additional 2,000 TWh – nearly the same output of all global renewables (excluding hydro) installed to date.
Meeting the power decarbonisation challenge will require multiple forms of zero-carbon power
The urgency of achieving zero-carbon power systems by 2050 – which is an essential prerequisite to tackle the climate crisis – therefore dictates maximum achievable deployment rates of all renewable and other cost-competitive zero-carbon power sources.
Analysis of power demand-supply economics shows that renewables will be the lowest cost new-build power option in most countries within a decade. This remains true if we add to variable renewables (i) the cost of managing flexibility (i.e. meeting demand peaks when the wind does not blow and the sun does not shine, either by using energy stored at an earlier point in time or by using dispatchable peaking plants) and (ii) the compared “all-in” cost of renewables with baseload power generation on a like-for-like basis. Whilst it is undoubtedly technically and economically possible to manage a power system relying at 85% on variable renewables (with a combination of energy storage, hydro, bioenergy and gas with CCS to meet demand peaks) and very likely that renewables and storage will cover the lion’s share of all power demand by the end of the century, the pace at which this transition can realistically occur remains highly uncertain. Decarbonising the power system by mid-century using only wind and solar would only be achievable in a scenario of stagnating power demand. which would not deliver the deep decarbonisation we need to avert dangerous levels of climate change. This is especially true in geographies with fast-growing populations and economies.
Considering both power capacity build-up plans of major governments and the evolution of deployment rates of solar and wind over the past 10 years, and projecting aggressive exponential deployment rates for renewables for the next two decades, SYSTEMIQ reached the conclusion that the maximum annual supply that could be generated from wind and solar by 2040 would be 19,900 TWh, an 8-fold increase compared to today. However, this would be less than half of the projected global power demand by then. This global picture hides striking geographical differences: the countries which will struggle to meet their 2040 energy demand using only renewables will be those with the fastest pace of power demand growth (in particular emerging markets), and those with the highest constraints on renewables deployment due to limited land and offshore space availability (in particular smaller, densely-inhabited countries).
Fusion as a potentially competitive supplement
The potential for fusion power generation should be read in this context, as an entirely new zero-carbon technology, with no resource constraints, that could accelerate the energy transition and help us reach the twofold target of 100% clean electricity and high electrification by mid-century, together with wind and solar generation. Conventional or advanced nuclear fission could also play this role, assuming cost-competitive generation costs and higher social acceptance.
Fusion has been a speculative technology ever since the first experiments started in the 1950s and 1960s, driven by large, expensive and slow government programmes. Today, several privately-funded competing technologies are working towards fusion and net gain (i.e., generating net additional power). Just as aerospace start-ups like SpaceX and Rocket Lab have slashed the cost of rocket launching compared to government-led programmes, fusion start-ups are driving technological innovation with dramatically reduced budgets and times for commercialisation currently set for the 2030s.
Whilst renewables will shortly be the cheapest power generation option, fusion has the potential to provide clean baseload power, providing firm power 24x7. On an economics-only basis, the fusion market will therefore be defined by (i) the size of the gap between power demand and supply once power generation from renewables has been maximised, and (ii) the cost of competitive technologies for baseload generation, in particular fossil fuels based generation (with or without carbon capture), nuclear fission and large-scale hydro.
In a world committed to achieving the Paris Agreement, the cheapest and most abundant of these alternatives – i.e. fossil fuels without carbon capture generating electricity below $60/MWh – should be phased out, creating a much bigger need for zero-carbon baseload technologies. Both nuclear fission and fossil generation plus carbon capture and storage (CCS) are forecast to have costs above $100/MWh in most Western countries, whilst fusion could reach commercial scale around $50-60/MWh in the current best case scenario. It could therefore play a critical role complementing renewable energy in achieving a low-carbon economy through broader electrification and 100% clean electricity, in line with the Paris targets.
Best markets for fusion
Our analysis identified a few countries where market dynamics will create high marginal power prices in the 2030s, offering opportunity for early adoption of fusion, even at a cost higher than $75/MWh. At the top of the list are smaller developed states facing high resource constraints. The addressable market for fusion will further increase as it its cost curve lowers. If fusion can be delivered at $60/MWh, the addressable market could be above 460 GW globally.
Two additional factors could favour the deployment of fusion, beyond cost-competitiveness and climate policy. Firstly, countries that rely heavily on energy imports, such as Japan or South Korea, aspire to diversify their power mix and find a stable local power source for energy security reasons. Secondly, countries with an aging fleet of nuclear fission plants, such as the US, France and the UK, will face increasing decommissioning costs for these plants, which could be reduced by re-purposing some of the infrastructure for fusion.
Taking the example of the UK, power demand could double by 2040 with the requirement of an additional 300 TWh of electricity supplies per year. We expect renewables to scale up considerably, with offshore wind accounting for over 60% of new additions. On the contrary, solar PV deployment is coming off a low base and is unlikely to increase dramatically into the 2030s and 2040s given space constraints and poor-quality solar resources. In 2040, we expect the marginal LCOE in the UK to be around £65/MWh, set by natural gas with no CCS, with higher prices likely in instances of peak demand, especially in the winter. Fusion would therefore have to compete at this price to enter the UK at scale, without any subsidies or government support. It should further be noted that ten of the UK’s existing nuclear fission plants with an installed capacity of 6 GW are due to be decommissioned in the 2030s, presenting a potentially more economic adoption route for fusion if the same grid infrastructure could be reutilised.
By contrast, countries with high availability of low-cost domestic coal and natural gas do not currently constitute primary target areas for fusion deployment, but could become significant markets in the future. We estimate the cost of fusion would need to drop below $50/MWh to enter markets where cheap fossil fuels are readily available, in the absence of radical policies scaling down thermal generation much faster than expected. However, if fusion could compete with fossil fuels below $50/MWh, or if fossil fuels were to be rendered less competitive through a combination of carbon taxes and firmer policies tackling pollution and climate change, fusion could potentially enter the Chinese, Indian and US markets, to complement fast-growing but nevertheless insufficient renewables, and the total potential market for fusion could then grow to nearly 3000 GW.
Taking the example of India, the Energy Transitions Commission India argues that it is possible to increase domestic zero-carbon electricity from 24% today to 45% by 2030, with a combination of variable renewables (30%) and other zero-carbon sources (15%), including significant additions of hydro and nuclear fission capacity. This would make it possible to add no new additional coal capacity (beyond what is already in the pipeline) and dropping net coal capacity by 4 GW – although coal generation could continue increasing as utilisation factors would go up. However, if India wanted to take zero-carbon generation to 100% of 5000 TWh by 2050 or 2060, which would be desirable for the planet, it would face constraints such as land supply and costs, increasing costs of grid integration and feasible pace of growth of the renewables industry. A price-competitive fusion might therefore play a crucial role as the country moves towards stretching mid-century targets.
Concluding, we make the case that, in the next two decades, there will be a large global market for baseload clean power to complement variable renewables if we are to mitigate the impact of climate change, by large segments of the economy to clean electricity. Fusion has the potential to be significantly cheaper than other clean baseload options and should therefore be considered by policy-makers and investors as a climate change mitigation accelerator, to be pursued together with the continued deployment of all sources of renewable power generation that can bring down emissions in line with achieving a fully decarbonised power system by mid-century.
SYSTEMIQ, July 2019
Disclaimer: The article is based on analysis produced by SYSTEMIQ for the Energy Transitions Commission and for First Light Fusion, a fusion start-up based in Oxford.
 Non-hydro renewable power generation includes on- and off-shore wind, solar, biomass, geothermal, ocean power. Source: IEA, BP Energy Outlook
 TERI for Energy Transitions Commission India (2019), Exploring electricity supply mix scenarios to 2030.
 The IEA Current Policies Scenario predicts that global power demand could grow from 20,000 TWh today to 36,000 TWh by 2040, while the Shell Sky Scenario – with more aggressive electrification assumptions – indicates that it could reach 48,000 TWh by 2040.
 The ETC estimates that global power demand could reach 85,000-115,000 TWh by mid-century depending on the level of progress in terms of energy and materials efficiency. Source: Energy Transitions Commission (2018), Mission Possible: Reaching net-zero carbon emissions from harder-to-abate sectors by mid-century
 Climate Policy Initiative for Energy Transitions Commission (2017), Low-cost, low-carbon power systems
 Climate Policy Initiative for Energy Transitions Commission (2017), Low-cost, low-carbon power systems
 An LCOE of $50-60/MWh is currently assumed by First Light Fusion for its commercial reactors in the 2030s.
 Calculation based on growth in power demand expected across Europe in the Shell Sky Scenario.
 Solar PV generation in 2018 represented 12.9 TWh according to BEIS, less than 4% of total electricity generation in the UK in 2018.