3.3 World Energy Outlook

[Dan Hewitt] Welcome back to the IEA's podcast, Everything Energy. I'm Dan Hewitt. 

This week, we're looking at the 2025 edition of the IEA's World Energy Outlook. It's widely viewed as the most authoritative source of energy analysis and projections. It uses the latest energy data, technology and market trends and government policies to explore a range of possible energy futures. And here to talk through some of the report's key findings are lead authors, Lara Kotze and Tim Gould.

Lara is the IEA's Director of Sustainability, Technology and Outlooks, and Tim is the IEA's Chief Energy Economist. 

OK, Lara Kotze and Tim Gould, thank you so much for joining us. Now, to start with, I want to just remind people about the purpose or the aim of the World Energy Outlook. So, could you just boil it down into a couple of sentences, the key aims of it? 

[Lara Kotze] Yeah, thank you very much, Dan. So, every year for the past several years now, we produce and release the World Energy Outlook. And basically, as we know, there is no single storyline about the future of energy. We do present always multiple scenarios, none of which is a forecast. and we explore implications of policy, technology and market trends through 2050, actually. And the reason why we do this is that we intend to give all the possible data and consequences for policymakers, energy stakeholders at large, to take the best decision for the energy future. 

[Dan] OK, now there is another full commentary about some of the scenarios that you mentioned, but I think the best way to talk about the WEO is to look at the big themes. So, we're going to start with energy security. And the report said that energy is at the heart of today's geopolitical tension. So, Tim, I wonder if you can tell me a bit more about what's been driving that. 

[Tim Gould] Yeah, thanks, Tim. I think the thing that strikes us when we look at the energy landscape today is not just any individual aspect of energy security, but the fact that we have such a range of issues that cover pretty much all of the fuels and technologies that are out there. So, when you look at oil, there's an issue of sanctions. When you look at gas, there's obviously been the extreme tensions around Russian supplies to Europe or the cut to Russian supplies to Europe and what that's meant for global markets. But also, when you think of electricity, there's been a lot of strains on electricity systems in recent years that have become clear through blackouts and other operational incidents that also brought that into very much the political domain. But when you look also at new technologies coming into the system and particularly the supply chains for critical minerals, you've had very much in the news, the export controls on rare earth elements and battery-related technologies. So, the sense that that market concentration, the extreme level of market concentration that you have for some of those technologies and some of those critical minerals, that's also very much a feature of the energy security discussion. So, across all of those different elements, there are things that make a very complex landscape from our perspective and demand responses also from the energy policymakers who we're trying to communicate with also as part of this report. 

[Dan] And just staying with critical minerals for a second could you explain to us some of the vulnerabilities there specifically about China in terms of about the refining they do about the problems that happen if you have so much concentrated in one country.

[Tim] So I think first of all we need to be clear that we're talking about a different category of threat when we when we when we refer to critical minerals and because these are not things that are used directly in the energy sector as fuels. So, it's not the same as a shortfall for oil, where everyone who uses oil feels the effect of a spike in prices. But these are extremely important inputs, these critical minerals, to a range of really important bits of the energy infrastructure. So, copper for wiring, for transmission lines, all of the battery metals like cobalt and nickel and lithium going into the batteries that then provide really important services in the energy sector. And rare earth elements that go into electric motors and other aspects of energy related technology. So, when you have a shortfall in those areas, they really affect your ability to bring those technologies into the system at scale. So that's a little bit the context. And when we look at the degree of concentration, so China has a very high share of the market for refined output of a lot of those products. It's also a huge user of those outputs. That's one of the reasons why it has this very strong position. But it does mean that one of the golden rules of energy security is diversification. So, whenever you see a high degree of market concentration in any part of the energy sector, that's a cause for looking carefully at what risks might emerge as a result. And that's very much the situation that we see at the moment for critical minerals. 

[Dan] Okay, staying with vulnerabilities, the report also mentions threats from weather and cyber-attacks. So, Laura, I wonder if you could just tell us a bit more about that. And how can you build in resilience to those threats? 

[Lara] Yeah, thank you very much, Dan. I think as Tim mentioned earlier, the key thread here is multiple threads throughout multiple fuels and technologies and what you have been seeing particularly for the electricity sector is that the risks that are concerning electricity and their security are multiplying and we have been trying to track data about what's happening and the two areas have particularly struck our attention one has been how quick cyber-attacks are increasing. And we find that over the past four years, the number of cyberattacks directed to energy utilities have tripled. This is clearly showing for us an increasing vulnerability towards electricity supplies. An interesting feature here is that AI is actually helping the cyber-attacks to happen on one hand, but on the other hand, we are also seeing that those utilities that that have AI embedded in their systems are the ones that are able to come out of the attack more quickly. So, at the same time, AI being a threat can help to security here. The other is really extreme weather, and now those are influencing the functioning of electricity systems. You can have very high temperature, therefore bringing up electricity demand, but at the same time, what would happen is that conventional generation such as hydro may be very low, you wouldn't probably have wind, so you have a supply that is constrained, demand that is very high, and in some cases very violent events that could be storms or others. So, we were simply trying to track and understand how serious is this problem, and for last year we have actually found that 200 million households were affected by blackouts that that were directly linked to extreme weather events. So, something that is large and that we should increasingly take into account when making sure that electricity is up at all times. 

[Dan] Okay, now another big theme is the world's thirst for energy and the shifting center of gravity of where that demand might come from. So, could you put into context the scale of that energy demand and the developing countries that could be driving it? 

[Lara] Yeah. So, I think that one area that we have been trying to highlight is the commonalities across all of the scenarios that we are portraying in the World Energy Outlook. And we need, first of all, to understand why do we need energy and who will need it. So, we are seeing important drivers that point to very clear directions. The first is, where is the economy growing? And the economy is growing most in the service sector, meaning digital, meaning financial services, meaning health care. And the service sector tends to be very electricity intensive. So, it's already an indication that we're moving towards an economy that is more dependent on electricity than before. The other big driver is, of course, where is population? And we are seeing some important shifts there happening. As we speak, actually, China is experiencing a big population, and in the next 10 years, we'll actually be seeing less people in China, 50 million less people living in China than today. We all know that China has been driving demand of energy, basically writing the history of energy for the past 10 years or so. And this is changing. This is changing as more people are living in other emerging countries and developing economies, in particular, India. Southeast Asia, but also Latin America and Africa. So, population there are becoming richer. They are requiring more energy for cooling needs, owning more refrigerators, owning more cars. And therefore, we are very clearly seeing across all of the scenarios that the increase in energy demand is coming mostly from this group of countries that are altogether, not in a single way, taking the baton from China that has driven and written the energy history for the past decades over to the next decade. Okay and let's move on to renewables because another big theme in the report is the rising role that renewables are going to play. So, could you put into context how fast they are growing compared with other fuels in other sectors? Yeah, I think the renewables growth has to be really put in the context of the electrification of the economy We only understand it through that, actually. Electricity is the fastest growing fuel, if we may say so. And we need to understand which fuel and technologies are going to provide all this additional electricity that the world will need. And we find that all low emission technologies are growing very, very fast, led by solar. And the reason why solar is leading this growth is a combination of three factors. First is a cost. Solar is becoming more and more cost competitive. Many countries around the world are still having policies in place that support the deployment of solar. A third, importantly, 80% of the increase in electricity demand is actually happening in places where the solar resources are excellent. This was not the case in the past, where most of the growth would be in the northern hemisphere, where you don't necessarily have the best solar resources. So, all these three things happening at the same time put Southern in a very good position. Nuclear is also growing very, very fast. We have been saying for the past several years that nuclear were experiencing a renaissance. And the data are very clear. 2025 is already seeing a record in terms of electricity generation for nuclear, growing another over 30% to 2035. and we're seeing the largest amount of new construction happening for the past 30 years. So, a very strong growth of all low emission fuels. 

[Dan] Okay, now staying with the energy mix, let's look at fossil fuels. So, what does the report say could happen to the consumption of oil and gas if we stay on our current path? So, one of the scenarios mentioned in the report. 

[Tim] So we do have, we've brought back this current policy scenario after a few years. It's back in the WEO 2025. And one of the findings from this year's World Energy Outlook is that if you just look at the policies that are in place, so enacted formally, and you also take a relatively cautious view on how quickly new technologies can be brought into the system, then that extends a horizon out for oil and natural gas growth beyond 2030 and towards mid-century. And so that's created a lot of interest and because when you look at another set of scenarios that we produce, the stated policy scenario, we have a different picture. We have oil flattening out around the end of this decade. And last time we did the stated policy scenario, gas also had a similar kind of trajectory. But this year, primarily because of policy changes in the United States and lower prices, because lots of new LNG coming to market, that period of gas growth extends out into the 2030s. So that's the broad picture for oil and gas demand in those two kind of more exploratory scenarios. 

[Dan] Okay, let's dig a little bit more into oil. What could change the different scenarios for the way the world uses oil, oil demand? 

[Tim] The thing that makes the biggest difference is EVs and electric mobility. There is a number of different ways in which you can approach the differences between that CPS trajectory that continues to grow and the flattening that we get in the stated policy scenario. Efficiency policies make a difference. The way that we collect and recycle plastics makes a difference and, but the single biggest factor is electric mobility because it's all about road transport and road transport is nearly half of oil demand. And in the the scenario that keeps rising. You know you have electric mobility continue to expand in in established markets notably in China, and but also in Europe where you have strong policies in place. But elsewhere doesn't really follow suit because you haven't followed through with putting the infrastructure in place and getting the incentives in place for consumers to buy electric. And that is one of the things that differentiates that outlook from a flattening outlook for oil demand, where you have outside of Europe, outside of China, particularly in emerging developing economies where car ownership rates are increasing quite strongly. You know, those choices switch also across much more so to electric in that stated policy scenario. And that's the key reason why you have that flattening. 

[Dan] Okay, well, let's talk about liquefied natural gas, LNG. It talks about a wave of it. So, who is going to be producing it and exporting it? And where is it going to go? 

[Tim] The growth is coming overwhelmingly from the United States, followed by Qatar. So, there's been this wave of new final investment decisions taken for LNG export capacity. And that wave has only grown stronger over the last 12 months since we last produced the World Energy Outlook because there's been a lot of new project approvals overwhelmingly in the United States that just make that wave even bigger than it already was in the last WEO. So that then extends out and some of it will come to Europe. Europe, domestic production is down, you know, and it's also moving away from pipeline gas from Russia, of course. So, it does need more LNG. China, in our view, will take some more LNG. But there's some new markets as well. And as prices come down for natural gas, there's potential then for countries like India or countries in Southeast Asia to also take in some of that LNG. And that's exactly what we see in our scenarios. It goes into industry. Some of it goes into power. Some of it goes into transport. You know, these are countries that by and large need cooling rather than heating. They have a very good solar resource. So, it's not going to be the same picture for gas use as you get in a place like Europe, where you have a large winter heating requirement. So, you need to be very conscious of those regional, you know, those regional factors and exactly where gas might come into the system. 

[Dan] And before we leave fossil fuels, I've got a question about coal. Coal demand is growing 50% faster than the next fossil fuel. I'm interested to know what's driving that. 

[Tim] So over the last few years, a lot of that has had to do with China. As Laura was mentioning that, you know, we've had a lot of electricity demand growth in different parts of the world, but China's been particularly strong. And where you also have peak demand increasing, you're bringing some of that backup capacity into the system, and a lot of that in many parts of the world has been coal. So that's one of the reasons why coal demand has been rising in recent years. But the future doesn't necessarily look like the recent past. And the speed at which countries like China are building out not just renewables, but also nuclear. In our view, it reduces the call on coal. How quickly that happens, you can see interesting variations across the different scenarios. But even with all of that extra electricity demand, at a certain point, if you continue the momentum behind solar, if you continue the momentum behind wind and nuclear and other technologies, that starts to have implications for coal too. And that's why we do see coal use going into decline before the end of this decade. 

[Dan] Okay, now, so we were talking about the energy mix there. So, I think it makes sense to talk about global emissions. Now, the report says there is less momentum than before behind national and international efforts to reduce emissions. And I just wonder if you could tell us a bit more about what's caused that momentum change, and really what it means for global emissions 

[Lara] Yeah, so, as we, as we mentioned at the very start then we, we are taking here a scenario approach and what we are doing is understanding and give really the consequences of each of the choices in front of all of energy professionals. So, in the current policy scenario that the team mentioned earlier that we reintroduced this year, we're actually seeing emissions remaining pretty high and rather flat to the 2050. In the stated policy scenario, we see a peak and a modest decline in emissions. And we have also, as we have been doing since 2021 now, also the net zero by 2050 scenario, which by design brings emissions down to zero in 2050. And what are the implications of each of those emission trajectory? The first, the current policy scenario would lead us to, by the end of the century, around 3 degrees warming, the stated policy scenario around 2.5 degrees warming, and the net zero by 2050 scenario, 1.5 degree warming. Something important to note that has happened for the first time this year is that across all of the scenarios, temperature, the 1 .5 degree temperature will be surpassed by 2030 in all of the scenarios and in all of the scenarios of course by different degrees we will stay above this threshold for several decades. This for us is another clear sign that the resilience measure within the energy sector will become ever more important. 

[Dan] And Lara I want to pick up on what you were saying earlier about electricity. Now the IEA has spoken in the past about the age of electricity coming soon, but now we're talking about its arrival. So, what are we pointing to? How has it moved from something expected to something we're living in today? 

[Lara] I think, first of all, we start from the data over the past few years. It has been very clear that electricity demand has grown much faster than energy demand, and this has happened sequentially over several years now. And for the reasons we have explained at the beginning, we are moving towards a society that is increasingly service based. Large parts of the population that are living in areas requiring cooling are becoming rich enough to actually buy air conditioners. And of course, the very big push of AI data centers and digital technologies are really pushing electricity demand very strongly up. So, there are a couple of pointers here. So, the fact that electricity demand is growing and growing stronger than energy demand is true across all of the scenarios that we have explored. And to give a sense of scale, the minimum amount that we're seeing being required from now to 2035 being additional is 10,000 terawatt hours, which is the entire amount of electricity that advanced economies are consuming today. This is huge. So, we often say that electricity accounts for around 20% of final energy uses but the reality is that sectors accounting for over 40% of the global economy use electricity as a primary input. So electricity has a disproportionate importance in the economy as we live in today and is only going to grow in the next 10 years That's why we're really saying we are here, it's the age of electricity, and it's becoming even stronger. 

[Dan] And just a question on potential roadblocks about electrification. Are we concerned that the grids are ready to meet that rising electricity demand? Not sure, Tim, if you want to answer that. 

[Tim] So we are concerned, yes. We've had a situation over the last 10 years that investments in generation have risen very substantially, up to around $1 trillion worth of investment each year. But if you look at the investment in grids, they've risen at less than half that pace, and there are around $400 billion each year. And what that means over the last 10 years is that 10 years ago we were spending, for every dollar going into generation, we were spending about 60 cents on infrastructure. Now that ratio has gone down to $1 for generation to 40 cents on infrastructure. And that is not where we need to be, because especially with the sorts of developments that Laura's been talking about, where you have new technologies coming into the system. You've got a lot of new demand. You need to be connecting up new loads. You need to be managing variability. You need your infrastructure to be working extremely well. And that's not the case in many countries. And so, there is this sense that investments in grid need to pick up very substantially in order to ensure the reliability, but also to make sure that we're using these new resources cost effectively. Because if you see lots of curtailment, that can be a way at the margin to manage some of these new resources, but too much of it, and you're just wasting a valuable asset. So, you need to make sure that the kit, the grid, is really fit for purpose, make sure that it's smart and that it's connecting new uses, connecting people who don't have access to electricity at the moment. So, I think it's a really important component of the future. 

[Lara] If I may come in here, I think Tim has brought in a very, very important point. We are seeing changes in the way electricity demand is coming in particular peak demand is growing very, very strongly and this growth in in peak demand that we're expecting over the next decade is larger than the increase we have had in what we call dispatchable sources over the past decade so we are going to be seeing increase in all dispatchable sources over, over the next decade being hydro, natural gas, coal but importantly, we're seeing very much a new star rising and this is batteries. Batteries is the fastest growing capacity of a dispatchable source out there. We're expecting to see a tenfold increase for a number of reasons because it can help being there at all times. It can help with the flexibility required by the amount of solar and cooling that are coming into the system. So, we have seen spectacular growth over the past couple of years, spectacular cost declines and we are seeing we are expecting to see a very, very big deployment of this technology.

[Tim] Just coming back in, if i might, uh because there's I mean we've gone through this uh this conversation without mentioning the word uh efficiency and it's probably uh you know we would we would look back and regret if we didn't mention it because it's super important also in this on in this area. Um, you know there's a lot of new air conditioning units being bought around the world and the efficiency of those units is a really important factor in determining peak demand and in determining some of the strains that we might see in electricity systems. And one of the aspects of the new analysis that we put in this year's World Energy Outlook is to say, well, if the technical efficiency of those air conditioners was up at the level that we see in some of the leading countries of the world, I mean, Japan, for example. That would reduce overall consumption substantially for cooling. I mean, you could bring it down by roughly a quarter, but it would have particularly important implications for peak demand and some of those strains that you get on the systems. You know, at moments when you need to have as much flexibility as you can. So, there's a really important part of this debate is around improving those minimum energy performance standards and the ways that you can ensure that the efficiency of the appliances that we're buying is as good as it can be. And this is not a question of making stuff more expensive for consumers, because by and large, you can find more efficient appliances on the shelves in different countries around the world at really at minimal or no cost differential to the average that's being bought today. 

[Dan] Okay, another source of energy demand that's in the news a lot is data centers. And I just wonder if we can reflect on what the report says about the scale of investment in data centers and how much energy demand, they could potentially use. 

[Lara] So what's happening at data centers today is remarkable. We have been seeing over the past decade a doubling of data center servers and we are expecting these to actually double again by 2035. Investments that are going into data centers today are basically on par of what we're seeing in the oil sector. So, when we say data is the new oil, there is also some very clear economic figures that back that up. Data centers are very energy intensive. In fact, they're very electricity intensive. And currently they are concentrated in three areas of the world. They are in the US, China and the European Union. 85% of data centers are in these three locations. So, in certain regions of the world, in particular the US, they are going to mean a very significant change in electricity demand trends. We are coming out of a decade of electricity demand being flat in advanced economies. Data centers are changing actually this shape. So, electricity demand is returning to growth because of data centers. In the US, they will account for 50%. So, half of the electricity demand growth in the U.S. is going to be driven by data centers. So, this is very, very significant. But when you look at the step back in the global level, data centers today are around 1.5 percent of global electricity use. And in terms of growth, they will account for around 10 percent. So, a very significant part. But we mentioned earlier, demand for cooling, demand for appliances, demand for other types of uses is also growing very fast. So, at the global level, significant, but not huge. At local scale, it can have very, very big implications. 

[Dan] Now, bringing together some of these ideas that we've spoken about, and I'd love to hear both of your thoughts on this. And it says, to meet some of these challenges, policymakers need to show the spirit of 1973. And I'd just be interested to know what you think that means. What do we mean by that? 

[Tim] Well, I'll have a first go. Around the time, that's obviously around the time that the IEA was created, first oil shock, and the initiative that then led to countries coming together to resolve some of these pressing energy security issues that arose because of that spike in oil prices. So the first thing, the first association that we're looking for there is when we think about some of these new emerging energy security challenges, whether that's in the electricity sector, but particularly now in some of the supply chains for critical minerals and elsewhere, can we think about rallying around to find solutions there, to find mechanisms for cooperation that will allow us to address them in the same way that we did back then, 50 years ago, on oil security. And obviously that led to the creation of the IEA back in the day. 

[Lara] Yeah, I think that what we were putting together over the past year, the World Energy Outlook, we found through data, very much confirmation of a lot of the discussions that were held in London and the Future of Energy Security Summit. So multiple risks, risks multiplying across different fuels, across different technologies, across critical minerals. And we felt, and in particular the executive director mentioned that in an op-ed on critical minerals, it's a bit of 1973 moment, certainly for critical minerals, but for energy security at large. So, I think we are trying to ring an alarm bell to policymakers that those risks are there in a systemic way as never before. So, we would go back to the principles of energy security, try to work all together on diversification, predictability and cooperation. So, this is a bit the sense of the 1970 dream moment. 

[Tim] And this one sort of remark that also the executive director made with the launch of the World Energy Hourly, that it's very important to respond to these energy security threats, these risks that we've talked about. But you can't forget other policy goals. So, you need to think about, as he put it, the synergies and the trade-offs that might arise also with really important goals on affordability, on access, on competitiveness, but also on climate change. 

[Dan] Okay, well, Laura Kotze and Tim Gould, thanks so much for talking to me. 

[Lara] Thank you, Dan. 

[Tim] Thanks a lot, Dan.