FossilFuelTransitionStrategiesRMI’sGlobalEnergyTransformationGuide:ElectricityNovember2022GLOBALGUIDErmi.org/2FossilFuelTransitionStrategiesGLOBALGUIDEAboutRMIRMIisanindependentnonprofitfoundedin1982thattransformsglobalenergysystemsthroughmarket-drivensolutionstoalignwitha1.5°Cfutureandsecureaclean,prosperous,zero-carbonfutureforall.Weworkintheworld’smostcriticalgeographiesandengagebusinesses,policymakers,communities,andNGOstoidentifyandscaleenergysysteminterventionsthatwillcutgreenhousegasemissionsatleast50percentby2030.RMIhasofficesinBasaltandBoulder,Colorado;NewYorkCity;Oakland,California;Washington,D.C.;andBeijing.rmi.org/3FossilFuelTransitionStrategiesGLOBALGUIDECaraGoldenbergAnibalGomezLeiaGuccioneGenevieveLillisMattSugiharaAuthorslistedalphabetically.ContactsMattSugihara,msugihara@rmi.orgCaraGoldenberg,cgoldenberg@rmi.orgCopyrightsandCitationMattSughiara,CaraGoldenberg,AnibalGomez,LeiaGuccione,andGenevieveLillis,FossilFuelTransitionStrategies—RMI’sGlobalEnergyTransformationGuide:Electricity,RMI,2022,https://rmi.org/global-energy-transformation-guide-fossil-fuel-transition-strategiesRMIvaluescollaborationandaimstoacceleratetheenergytransitionthroughsharingknowledgeandinsights.Wethereforeallowinterestedpartiestoreference,share,andciteourworkthroughtheCreativeCommonsCCBY-SA4.0license.https://creativecommons.org/licenses/by-sa/4.0/.AllimagesusedarefromiStock.comunlessotherwisenoted.Authorsrmi.org/4FossilFuelTransitionStrategiesGLOBALGUIDETheauthorsthankthefollowingindividualsfortheirhelpfulinsightsand/orfeedbackonthisreport.Allerrorsremainourown.RMIDiegoAngelKingsmillBondKobenCalhounFrancisElishaAlexEngelRachitKansalDhroovaaKhannanWhitneyMannLaetitiadeMarezAcknowledgmentsTyelerMatsuoFrancisNdongoKajaRebaneJeremyRichardsonCarinaRosenbachSakhiShahEmmaSlaterOleksiyTatarenkoJuanVialExternalCatherineAbreu,E3GVaibhavChaturvedi,CouncilonEnergy,Environment,andWaterAnanthChikkatur,DeloitteConsultingUSAnnaCollyer,AustralianEnergyMarketCommissionTanujDeora,independentintervieweeStephenDoig,RMI,IrvingInstituteforEnergyandSociety,andDartmouthCollegeGarrettFitzgerald,SmartElectricPowerAllianceMaxGruenig,E3GJennieJorgensen,NationalRenewableEnergyLaboratoryArchitrandiPriambodo,AsianDevelopmentBankFranciscoSalazar,EnixRichardSedano,RegulatoryAssistanceProjectMichaelSponring,PwCRobertStoner,MassachusettsInstituteofTechnologyEricWanless,GlobalEnergyAllianceforPeopleandPlanetDanWetzel,InternationalEnergyAgencyrmi.org/5FossilFuelTransitionStrategiesGLOBALGUIDEAboutThisReport................7ExecutiveSummary...............9Introduction...................11GlobalTrendsEmergingintheFossilFuelTransition.....................15TheTransitionAwayfromCoal.............18TheChangingRoleofGasinFuturePortfolios....20Private-SectorCommitments..............24MobilizationofFinancetoSupportTransitionStrategies...................25EnsuringaJustTransition................27KeyChallengesandOpportunitiesintheFossilFuelTransition.............31TableofContentsrmi.org/6FossilFuelTransitionStrategiesGLOBALGUIDEHowFossilFuelTransitionStrategiesCanSupportPriorityOutcomes.........34EnsureaFairandInclusiveEnergyTransition.....35CreateaSystemPoisedforSustainableGrowth...37IncreaseEfficientUtilizationofCleanAssets.....40InnovationintheFossilFuelTransitionAcrossCountries................44AdvancedEconomies...................45Middle-IncomeandEmergingMarketswithDynamicElectricitySectors...............49Middle-IncomeandEmergingMarketswithStableElectricitySectors.................50DevelopingEconomies..................51Spotlights.....................54CoalTransitionintheUnitedKingdom........54Kenya’sGrowththroughCleanEnergy.........55OvercomingLong-TermFossilFuel–GenerationPPAsinChile........................55Stakeholder-DrivenJustTransitioninCanadaandGermany........................56Conclusion....................57Endnotes.....................59rmi.org/7FossilFuelTransitionStrategiesGLOBALGUIDEAboutThisReportThisreportispartofRMI’sGlobalEnergyTransformationGuide:Electricityseries,whichisaresearchendeavoraimedatunderstandingtheleadingedgeofinnovationforforward-thinkingelectricitysystemtransitionsaroundtheworld.TheintentoftheGlobalGuideistoassessnewdevelopmentstosecureuniversalaccesstoreliable,affordable,andcleanelectricitybyidentifyingkeytrends,exploringemergingchallengesandopportunities,andsharingsuccessstoriesfromelectricitysystemleaders.Theseriesfocusesoneightcatalystsforchangethatourresearchhasshownhavethegreatestpotentialtosupportelectricitysystemtransformation.Thesecatalystsarehigh-impactleversavailabletoindustryleadersacrosscountriestotransformthepowersector.RMIplanstopublishaseparatereportforeachoftheeightcatalyststoprovidedetailsontheinnovationedgeandwhereleadershipisneededmost.rmi.org/8FossilFuelTransitionStrategiesGLOBALGUIDEThisreportisfocusedonFossilFuelTransitionStrategies.Theothercatalystsinthisseriesare:•MarketStructures•SystemPlanningandProcurement•PublicPolicies•CustomerSolutions•AccessibleFinance•UtilityIncentiveStructures•Carbon-FreeTechnologyAdditionally,foranintroductiontothiseffort,explanationoftheframeworkusedtoguideourdiscussionofdifferentcatalysts,andfurthercontextonwherecountriesareintheirenergytransition,wehavepublishedacomplementaryreporttitledPointsofProgress—AnIntroductiontoRMI’sGlobalEnergyTransformationGuide:Electricity.rmi.org/9FossilFuelTransitionStrategiesGLOBALGUIDEExpandingenergyaccess,supportingsustainablegrowthopportunities,andreducingemissionsarethreekeyfactorsunderpinningcommitmentstoandimplementationoftheglobaltransitionawayfromfossilfuelstocleanenergysources.Avarietyofpressuresaredrivingthistransition,fromfinancialinstitutionsandshareholderstogovernmentsandutilities.Inresponse,diverseinnovativesolutionsareemergingacrosstheglobethatcanofferimportantinsightstocountriesastheycrafttheirownstrategiestonavigatethetransition.Thisreporttouchesonfivekeytrendsprominentaroundtheworldthatwillhaveasignificantimpactonthesuccessfultransitionawayfromfossilfuels.Theyare:•Thetransitionawayfromcoal.Althougheconomics,politicalpressures,andpolicyactionshavesupportedthedeclineofcoalglobally,coaliscontinuingtogrowinsomeregionswithreadyaccesstosupplyandsubsidizedrates.•Thechangingroleofnaturalgasinfuturegenerationportfolios.Althoughexistingpoliciesandproceduresmayfavordeploymentofgasgenerationinsomecountries,globalgasdemandisexpectedtodeclinebecauseoftightersupplies,elevatedprices,andincreasedmarketuncertainty.•Mobilizationoffinancetosupporttransitionstrategies.Becausetransitioninglarge,complexfossilfuelassetsiscostly,theavailabilityofinnovativefinancingisacriticalenablertoacceleratetheirtransition.•Private-sectorcommitments.Investorsandshareholdersareincreasinglyintegratingclimateconsiderationsintotheirinvestmentstrategies.ExecutiveSummaryrmi.org/10FossilFuelTransitionStrategiesGLOBALGUIDE•Ensuringajusttransition.Ifnotmanagedappropriately,workersandtheirfamilies,aswellasbroadercommunitieseconomicallydependentonfossilfuels,willbearadisproportionateburdenofthetransition.Allthesetrendsneedtobeconsideredinthetransitionfromfossilfuels.Innovationwillberequired(1)totransitionthedirtiestplantsquicklyandwithminimalimpactstocommunitiesandcustomersand(2)todevelopnewcleanenergyresourcestotaketheplaceoffossilfuelgenerationandmeetnewdemandgrowthinafairandequitablemanner.Thefossilfueltransitionwillopennewopportunitiesforeconomicgrowth,bringingcheaperandcleanerpower,aswellasassociatedindustryandjobstosupportit.Toensureeconomicviability,transitioningassetsneedtobereplacedbynewsourcesofcleanenergy,includingrenewablesanddemand-sideresourcessuchasenergyefficiencyandflexibleenduses.Thefossilfueltransitionwillneedtobeenabledandsupportedbyfinancing,aclearpipelineofcleanreplacementenergyprojects,innovativeutilityprograms,andnewtechnologytosupportflexible,responsive,andreliablegrids.Thisreportidentifiesthecriticalchallengesthatcountriesfaceintransitioningtheirelectricitysystems,aswellasthekeyopportunitiestheywillbeabletotakeadvantageof.Thelatterincludeinnovativefinancingmethods,rolesfortheprivatesectortoincreasedemandforcleanenergy,newwaysworkersandcommunitiescanparticipateinthecleaneconomy,newtechnologiesandbusinessmodelstoexpandelectricityaccessandreliability,andemergingopportunitiesforcountriestoleveragethetransitionforclimate-forwardgrowth.Theseareexemplifiedincasestudiesfromaroundtheworld,suchastheUK’scoaltransitionandChile’sinnovativemethodstotransitioncoalpowerpurchaseagreements(PPAs).Aspolicymakers,utilities,investors,developers,civilsociety,andotherstakeholdersexplorewaystosupportafossilfueltransition,wehopethisreportprovidesinspirationandlessonsfromplacesthatarealreadynavigatingthechallengesinfrontofthem.rmi.org/11FossilFuelTransitionStrategiesGLOBALGUIDEIntroductionTransitioningtheworld’senergysystemawayfromfossilfuelstocleanenergysourceswillenablecountriestoexpandenergyaccess,supportsustainablegrowthopportunities,andreduceemissions,especiallythroughexpansionofrenewablegenerationandenergy-efficiencygains.iThispaperfocusesonthevarietyofpressuresandstrategiesdrivingthistransitionawayfromfossilfuelgenerationandhighlightsinnovativesolutionsemergingacrosstheglobetosharelessonsandinsightsthatcanguidenewefforts.Thefossilfueltransitionisnotonlyaboutreducingpowersectoremissions.Itwillalsoreshapetheglobalelectricitysectorandopenfurtheropportunitiestodecarbonizeandmodernizegridsystems.Thepowersectorhasmaturecleanenergytechnologieswithfavorableeconomics,puttingitattheleadingedgeofthebroaderenergytransition.Italsoexpandsopportunitiesforequitableaccesstootherenduses,suchascooking,mobility,andthermalcomfort.Itisimportantthatpowersectordecarbonizationbecompletedrapidlybutalsoequitably,toensurethatcommunities,workers,andmarketsrelyingontheexistingsystembenefitfromthetransition.iWhileelectricitygenerationisthefocusofthisreport,thefossilfueltransitioncanbroadlyincludetheglobalenergysystem,suchasliquidfuelsfortransportation.Thefossilfueltransitionwillreshapetheglobalelectricitysectorandopenfurtheropportunitiestodecarbonizeandmodernizegridsystems.rmi.org/12FossilFuelTransitionStrategiesGLOBALGUIDEThisreportexploresvariousdimensionsthatneedtobeconsideredintheglobalfossilfueltransition,including:•Reducingandavoidingemissionsassociatedwithexistingandnewfossilfuelgeneration,whenpossibleandappropriate•Supportingfossilfuelworkers,communities,andtheassociatedeconomiestoachieveajusttransition•Appropriatelywieldingregulatorytoolstoensurethatthemosteconomicsolutionsareimplemented,includingnotonlynewgeneration,butalsoenergyefficiency,demandresponse,andothernon-wirealternatives•Incentivizingdeploymentofrenewablesthroughreducedbarriersoraccesstocapital,includingsupportfordemand-drivenactionssuchascleanenergycommitments•Recognizingtheenvironmentalco-benefitscapturedthroughcleanresources•OvercomingpoliticalchallengesandbarrierstothefossilfueltransitionManymorechangeleverswillalsogovernthepaceandscaleofelectricitysectordecarbonization.RMIwillbeexploringthepolicy,planning,market,andtechnologypressuresandopportunitiesincompanioncatalystreports.Todecarbonizethepowersector,whileachievinguniversalaccesstoaffordableandreliableelectricity,theworldwillneedtomakeamassivechangeinthewayitgeneratesandmanagesenergy.rmi.org/13FossilFuelTransitionStrategiesGLOBALGUIDE5,00010,00015,00020,00025,00030,000CoalGasOilNuclearHydroSolarandwindOtherRenewablesElectricityGeneration(Terawatt-hours[TWh])Exhibit1IncreaseinGlobalPowerSectorEmissionsandShiftsinGeneration,bySourceSource:BP,StatisticalReviewofWorldEnergy;Ember,GlobalElectricityReview;Ember,EuropeanElectricityReview;IEA,WorldEnergyOutlook200020032006200920122015201820215,00010,00015,00020,00025,00030,000CoalGasOilNuclearHydroSolarandwindOtherRenewablesElectricityGeneration(Terawatt-hours[TWh])PowerSectorEmissions161214108462PowerSectorCO2Emissions(Gigatons[Gt]/year)ElectricityGeneration(Terawatt-hours[TWh])PowerSectorCO2Emissions(Gigatons[Gt]/year)Globally,installedcapacity,asshowninExhibit1,isstilllargelyfossilfuelgenerated.Forexample,GlobalEnergyMonitorestimatesthat:•Morethan2,400coalplants,across79countries,totalaround2,100gigawatts(GW)ofinstalledcapacity.1•9,354gas-firedgenerators(above50megawatts[MW]),across129countries,totalaround1,800GWofcapacity,whichisknowntobeasignificantundercountofactualgenerators.ii•Oil-basedgenerationismoremarginalattheutilityscalebutcontributestoelectricitygenerationthroughsmallgeneratorsandiswidelyusedincertainareas,suchasislandstates.iiGlobalEnergyMonitor’scriteriaexcludecertaingenerationunits,suchasthosesmallerthan50MW,aswellasgenerationfororfromliquefiednaturalgas.Also,thecriteriaoftenmisscapturedorembeddedgenerationunits.rmi.org/14FossilFuelTransitionStrategiesGLOBALGUIDEWhilecoalstillconstitutesasignificantshareofgeneration,newcoalplantsarebeingaddedinonlyalimitednumberofregions.Incontrast,gasgenerationisgrowingglobally,evenasgaspricevolatilityisontheriseandthepriceforrenewableenergycontinuestoplummet.Inareasthatdonothaveaccesstoreliablegridpower,capacityfrombackupgeneratorsisalsogrowing.AstudybytheInternationalFinanceCorporation(IFC)estimatesinstalledcapacityofbackupgeneratorsinthedevelopingcountriesitstudiedtobebetween350and500GW—morethanalltheinstalledcapacityofIndia.2Giventheomnipresentroleoffossilfuelsinglobalelectricitysystems,thisreporthighlightsinnovativewaysthefossilfueltransitionisbeingapproached,managed,andexecuted,aswellaswayssomecountriesareseekingtobypassthetrappingsoffossilfuelgenerationentirely.Thisreporthighlightsinnovativewaysthefossilfueltransitionisbeingapproached,managed,andexecuted,aswellaswayssomecountriesareseekingtobypassthetrappingsoffossilfuelgenerationentirely.rmi.org/15FossilFuelTransitionStrategiesGLOBALGUIDEGlobalTrendsEmergingintheFossilFuelTransitionForty-twopercentofglobalemissionscomefromelectricitygeneration.3Toachieveaclimate-alignedpathway,industryplayersatalllevelswillneedtorethinkhowelectricityisusedandgenerated.Exhibit2EmissionsReductionPathwayandForecastElectricityDemandSource:BloombergNEF,NewEnergyOutlook,“GreenScenario:PowerandHydrogen”200020052010201520202025203020352040204520505,00010,00015,00020,00025,00030,000CoalGasOilNuclearHydrogenHydroBatteryStorageSolarWindOtherRenewablesGWrmi.org/16FossilFuelTransitionStrategiesGLOBALGUIDETheelectricitysectorwillalsogrow,aselectricityreplacesotherenergysources—suchasvehiclefuel,cookingoil,andbiomassforheating—throughelectrification,aswellasthroughdemandgrowthforeconomicdevelopment.Toachievecarbonneutrality,theInternationalEnergyAgency(IEA)forecaststhatrenewablesneedtomakeupnearly90%ofelectricitygenerationby2050.4Otherforecasters,suchasBloombergNewEnergyFinance(BloombergNEF),seesimilargrowthtrajectories,asshowninExhibit2(previouspage).Thecurrentenergytransitionis,inthewordsoftheEconomist,“unprecedentedinscaleandopportunity.”5Fossilfuels,however,arestillsignificantcontributorstobothelectricitysystemsandthebroadereconomy.Insomeplaces,therelianceonfossilfuelsdoesnotreflecteconomicrealitybecauseofheavysubsidization.AsshowninExhibit3,theInternationalMonetaryFund(IMF)estimatesthatexplicitsubsidiestotalednearly$445billionin2020,equivalenttoalmostathirdoftheIEA’sestimatedtotalenergyinvestment($1.52trillion)inthesameyear.6Exhibit3GlobalExplicitFossilFuelSubsidiesSource:IMF,AGlobalandCountryUpdateofFossilFuelSubsidiesBillionUS$20152016201720182019202020212022202320242025100200300400500600700800ExplicitSubsidiesExplicitSubsidies–Estimatedrmi.org/17FossilFuelTransitionStrategiesGLOBALGUIDEThesesubsidiestaketheformofpricesupportsorcapsthatmakeitlesscostlyforconsumerstopurchasefossilfuelsaswellasproducer-sidecontrolssuchastaxbreaksandconcessionarypublicfinancingthatmakeitcheapertodeveloptheresource.Realeconomicpressures,however,areforcingactionthroughavarietyofapproaches.Forexample,financialinstitutionsincreasinglyseecoalasunabletobefinancedglobally,whileinsurancecompanieshaveplacedrestrictionsonunderwritingcoalprojects.7Asaresult,itisincreasinglyexpensiveanddifficulttofinanceandoperatenewcoal-firedpowerplants.Intheinstancesthatcoalisabletobefinanced,itismainlybecauseofpolicysupportatagovernmentlevel.Utilitiesalsofaceamajorrisk(andcustomersevenmoreso),astherecouldbebillionsincostsinstrandedassetsfromcoalandgasplantsifthetransitionisnotmanagedproperly.8Anotherfactorisdemandpressure.Multinationalcorporations,forexample,areincreasinglydemandingcleanergenerationtomeettheirclimatecommitments.Theyarewillingtoinvestand,eveninsomeinstances,defectfromthegridtoachievecleangenerationandarecreatingamultibillion-dollarmarketopportunityforutilitiesandindependentpowerproducers(IPPs).Thisalsocanhavetheunintendedsideeffectofdrivingupfixedcostsforothercustomerswhoremainconnectedtothegrid.Atthesametime,pricestodeveloprenewablesystemsarefallingwherethesystemsareperceivedaslessrisky,cheaper,orofferingagreaterreturnoninvestmentthanfossilfuelgeneration.9rmi.org/18FossilFuelTransitionStrategiesGLOBALGUIDEThisreportwilltouchonfivekeytrendsprominentaroundtheworldthatwillhaveasignificantimpactonthesuccessfultransitionawayfromfossilfuels.Theseinclude:•Thetransitionawayfromcoal•Thechangingroleofgasinfuturegenerationportfolios•Private-sectorcommitments•Mobilizationoffinancetosupporttransitionstrategies•EnsuringajusttransitionTheTransitionAwayfromCoalCoal-firedpowergenerationisthelargestsinglesourceofgreenhousegasemissions,accountingforaround20%ofglobalemissionsin2021.10Asashareoftotalgeneration,coalpeakedgloballyin2007,ataround41%oftotalcapacity,andhasgenerallybeenfallingsince.11However,owingtoareboundindemandfollowing2020’sCOVID-19outbreakandgassupplychallenges,coalconsumptiongrewtomeetaroundhalfoftheworld’selectricitydemandgrowthin2021.12Asitstands,theglobalpowersectorisnotontracktomeetclimatealignment,whichaccordingtotheIEA’sNetZeroPathwaywouldrequireunabatedcoaltobephasedoutinadvancedeconomiesby2030andallothereconomiesby2040.13Mostrecently,energysecuritychallengesrelatedtoRussia’sinvasionofUkraine,aswellasgrowingdemandaftertheCOVID-19lullsin2020,havecausedanuptickinglobalcoalusefromanetgenerationperspective,atrendthatwilllikelycontinueinthenearterm.14ProgresshasbeenmorepositiveinplacessuchasCanada,theUnitedStates,andWesternEurope(despiterecentchallengesinsuchplacesasGermany),whereagingcoalplantshavebeenreplacedbynewer,cleaner,andmorecost-effectiveresources.However,asshowninExhibit4(nextpage),coalisdominantandgrowingincertainareassuchasinSoutheastAsia,China,andIndiawherenewcoalisunderpinninglargeinvestmentsingridinfrastructure.rmi.org/19FossilFuelTransitionStrategiesGLOBALGUIDEExhibit4GlobalChangesinCoalFleetStatus,2010–22,byRegionNote:Plannedadditionsincludeannounced,pre-permitted,orpermittedcapacity.Source:GlobalEnergyMonitor,GlobalCoalPlantTrackerAdditionally,inareassuchasIndonesiaandSouthAfrica—wherecoalgenerationiscloselylinkedtocoalproduction—electricitygenerationtransitionandcross-sectoreconomictransformationarecomplexandcostly.Wheretherearesuccessesinphasingoutcoal,theprimarydrivershavebeencloselylinkedtophaseoutcommitments,suchasthosemadebymanyadvancedeconomiesfollowingCOP26,carbonpricingmechanisms,andotherpolicymechanismssuchasenvironmentalregulation,becausecoalgenerationoftenisshieldedfrombroader-800-400-600-2000-200Canceled,​Shelved,orMothballedDecommissionedIn​ConstructionPlanned​AdditionsAfricaandMiddleEastCanadaandUnitedStatesEastAsiaEUEurasiaSoutheastAsiaRestofWorldLatinAmericanon-EUEuropeAustraliaandNewZealand−146.72−700.02166.03−153.11SouthAsia−665.74−150.94GWrmi.org/20FossilFuelTransitionStrategiesGLOBALGUIDEeconomiccompetition.iiiGovernmentcommitmentstophaseoutcoalhavecreatedadegreeofcertaintyinsuchplacesasEuropeandtheUnitedStates,whilecarbonpricinghashelpedtointernalizeemissionscosts,makinginvestmentsinnewcoalriskycomparedwithotheralternatives.Cost-effectivecleanenergyhasalsoemergedasamorelucrativeinvestmentthancoalinavarietyofcountries,includingCanada,Chile,andtheUnitedStates.TheChangingRoleofGasinFuturePortfoliosWhiletheexpansionofcleanenergyhasplayedasignificantroleinthedeclineofcoalinsomeregions,thegrowthofgashasalsobeenakeydriver.Gashasbecomeagloballyrelevantcommodityinrecentyears,especiallyimportanttotheelectricitysectorbecauseofitsperceivedflexibility,reliability,andeaseofdeploymentingrowingenergysystems,aswellastheaspirationthatgasinfrastructurebringslarge-scaleinvestmentinextraction,distribution,andendusessuchaselectricitygeneration.Gashistoricallyhasbeencheaperonaveragethancoaloroil,makingitdesirableforneworexpandingelectricitysystems,especiallyinareasseeingrapidlygrowingdemand.Proponentsofgasalsohighlightthatitiscleanerthancoalandallowsgeneratorstomeetmorestringentenvironmentalregulations,thoughagrowingbodyofresearchfindsthatmethaneleaksandfugitiveemissionspartiallyorfullyerasethisbenefit.15Petroleum-richcountriesarealsolookingtogasasavehicleforeconomicgrowththroughjobcreation,gasexportrevenue,andinfrastructuredevelopment.CountriessuchasAustralia,Mozambique,Qatar,Russia,andtheUnitedStatesaremakinglargeinvestmentsinupstreaminfrastructure,thoughoftentheseprojectsdon’tcontributemateriallytolocaleconomicdevelopmentandinsteadrelyonanimportedworkforceandinternationalsuppliers.16Furthermore,growthinindustriessuchasliquefiednaturalgas(LNG)rmi.org/21FossilFuelTransitionStrategiesGLOBALGUIDEExhibit5GlobalProvedGasReservesSource:BP,StatisticalReviewofWorldEnergyGrayindicatesnodataTrillionCubicFeet2006008004001,0001,2001,400Grayindicatesnodatahasexposedbuyersandsellerstoavolatileinternationalcommoditymarket,whichisfurtherexacerbatedbygeopoliticaltensionsamonglargeplayersintheindustry,suchasmanyofthoseinExhibit5withexceptionallylargeprovedgasreserves.Still,gasisbeingusedtoreduceenergypovertyandexpandaccessandqualityofsupplyinspecificcircumstances.Thisisimportantinenergy-poorregionswitharemotecustomerbase,suchasSmallIslandDevelopingStates.Incaseswheresmallusersmustdealwithaveryunreliablegrid,smallgasgeneratorsareoftenmorecompetitivethandiesel.17Attheutilityscale,ininstanceswithoutall-sourceprocurementprocesses,gasassetsmaybeselectedovercheapercleanenergyresources.However,doingsoalsoexposescustomerstovolatilepetroleummarkets,whichoftenmakegridinvestmentsandrenewablesacheaperandmorestableapproach.GLOBALGUIDErmi.org/22FossilFuelTransitionStrategiesDespitethedisplacementofcoalbygasresourcesinmanylocationsaroundtheworld,globalgasdemandisexpectedtodecline0.3%in2022,drivenbytightersupplies,elevatedprices,andincreasedmarketuncertaintycausedbytheRussianinvasionofUkraine.18Assuch,decisionmakersconsideringthechangingroleofgasinfuturegenerationportfoliosshouldfullyaccountforthebenefitsandpaceofmaturityforcleanelectricitysourcesovernewgasgeneration,including:•Thefallingcostofbatterytechnologies,whichmakesco-locatedhybridprojectsextremelycompetitiveinmanyregionswhenplanningforreliability.•Energysecurity,intermsofbothsupply(seeGeopoliticsandFossilFuelPricingbelow)andgeneration(seeGlobalClimateExtremesandtheGridonpage37).•Wheregasisneeded,usingcertifiedgasproductsthatmeetstringentstandardscouldbeamoreclimate-friendlybackstop.19CountriessuchasChile,Kenya,andUruguay,withlargeendowmentsofrenewablepotential,havefoundsuccessinavoidinggas-fueledgenerationdevelopmentthroughtargetedinvestmentsandrenewables-sectorsupporttomeetincreasingelectricitydemand.SupplycrunchesinEuropearealsoforcingnewpolicymechanisms,suchastheREPowerEU,torapidlytransitionawayfromgastowardgreenergeneration.20GeopoliticsandFossilFuelPricingItisdifficulttoseparatethediscussionofafossilfueltransitionintheelectricitysectorfromabroaderdiscussionoffossilfuelsintheglobaleconomy.TheRussianinvasionofUkraineinFebruary2022significantlyupsetglobalpetroleummarketsasglobalgassuppliesconstricted,anongoingtrendsince2021.21Thishascausedanaccelerationofrenewablesdeploymentinsomeplaces,whileothershaveturnedtohigher-emittingresourcesincludingdomesticcoal.22TheseimpactshaveGLOBALGUIDErmi.org/23FossilFuelTransitionStrategiesExhibit6NaturalGasPriceAssumptions,2019–25Note:HenryHubisanindexnaturalgaspriceusedpredominantlyintheUnitedStates;TTFistheDutchTitleTransferFacility,amarkerwidelyusedinEuropetopriceLNG;AsianspotLNGrepresentspricemarkersforspottransactionsinAsia.Source:IEA,GasMarketReport,Q3-2022.AllrightsreservedOilIndexationRangeTTFHenryHubAsianSpotLNG20192020202120222023202420253035201510525US$/MBturippledfromKorea’scoalmarketstoNigeria’sindustrialsector.23AsshowninExhibit6,theIEApredictsgaspriceswillcontinuetoriseingeneral,andthoughtheymaydipintheshortterm,theirlong-runpriceswillstillbehigherthanlowsseeninthe2010swhengasdippedbelow$2permillionBritishthermalunits(MBtu).24Inshort,relianceonfossilfuelsuppliesforpowergenerationhassignificantimplicationsfordomesticenergysecuritypolicyandexposuretointernationalmarketpressures.Theseareimportantconsiderationswhenvolatilefuelpricesaresimplypassedontoelectricitycustomersinmanymarkets.Geopoliticswillplayamajorroleasthebackdroptotheenergytransitionandneedstobeadequatelyincorporatedintoplanningbyallparties.Theseeconomicandpoliticalheadwindswillcontinuetodrivepolicymakersandgridoperatorstoreevaluatetherolethatgasgenerationshouldplayinfutureportfolios.rmi.org/24FossilFuelTransitionStrategiesGLOBALGUIDEPrivate-SectorCommitmentsPoliciesrelatedtotheuseofcoalandgas,aswellasthedeploymentofrenewables,areincreasinglybeinginfluencedbyprivate-sectoractorssuchascorporations,investors,andbanks.Publiclytradedcompanies,forexample,areunderpressurefromshareholderstonotonlydisclosetheirclimateimpacts,butalsotomakecommitmentstoreduceemissionsinlinewithinternationalandnationalgoalssuchastheParisAgreement.Thesecommitmentsarenotinsubstantial;onestudyestimatesthatFortune500companiesaccountforaround27%ofglobalemissions,equivalenttothatofChinaandslightlymorethandoubletheUnitedStates’emissions.25Tomeetthesegoals,businessesarerethinkinghowtheypowertheiroperations.Forexample,morethan360companiesacrosstheglobehavecommittedtoprocuring100%cleanenergyby2050throughtheRE100initiative,catalyzinggreenenergydevelopmentinnotonlymaturebutalsoemergingmarkets.26Thesecommitmentsarehavingmaterialimpactsongrids.IntheUnitedStates,forexample,corporatebuyerssigned17GWofnewrenewablescontractsin2021,equivalenttoaround61%ofnewcleanenergyinstalledthatyear.27Anothermajortrendemergingisagrowingshareofcapitalbeingdirectedbyfinancialinstitutionsintheformofenvironmental,social,andgovernance(ESG)investing.Whilethesefundsostensiblysupportenvironmentalobjectives,theiractualimpactonpower-sectoremissionsreductionsistenuous.28Tofocusontransitionimpacts,privatefinancialinstitutionsarerealigningtheirinvestmentholdingstowardclimate-alignedobjectives,suchasendingfinancingfornewcoal.Onlyfiveyearsago,thetoplendersfornewcoalincludedmajorplayerssuchasCreditSuisseGroupandHSBCHoldingsPLC,butin2022,allarebanksinChina.29VoluntarycommitmentssuchastheGlasgowFinancialAllianceforNetZeroareseekingtoreduceprivatefinancingevenfurthertoalignwithgovernmentcommitmentsregardingpublicfinancing.30rmi.org/25FossilFuelTransitionStrategiesGLOBALGUIDEFinally,inareaswheregridreliabilityisaconcern,private-sectoractorsarefindingitcheapertoprocuretheirowncaptiverenewableenergy,especiallyiftheyalreadyareself-generatingfromcostlydieselgenerators.ArecentstudybyWoodMackenzie,forexample,estimatesthatinmarketssuchassub-SaharanAfrica,aswitchfromdieseltosolarcouldseefirst-yearsavingsof15%–40%ofpowercosts.31Giventhelowvariablecostsofrenewables,thiscansubstantiallyloweroveralloperationalexpensesaswellaspreventexposuretovolatilefossilfuelpricing.MobilizationofFinancetoSupportTransitionStrategiesInadditiontoprivate-sectorfinancing,publicfundsarealsobeingmobilizedtosupportthetransition.Becausetransitioninglarge,complexfossilfuelassets,especiallycoal,iscostly,theavailabilityoffinancingisacriticalenablertoacceleratetheirphaseout.Itisimportantthatfinancingmechanismsaredesignedsuchthatcommunitiesandcustomersarenot“onthehook”forincreasedcosts,whileatthesametimeensuringswifttransitionofemittingassets.Thesemechanismsfallunderfourbroadcategories:compensation,refinancing,managedtransitionvehicles,andbroadtransitionsupport.ivChile,Europe,SouthAfrica,SoutheastAsia,andtheUnitedStatesareallbenefitingfromoneormoreofthesefinancialtransitionmechanisms.However,thereissignificantpotentialtoincreasetheiruseacrossdifferentgeographicalareas.RMI,withotherpartners,hasbeguntodeveloptoolsandtaxonomiestoidentifywhichtransitionmechanismswillbemoreeffectiveormoreappropriateforspecificassets,utilities,andregions,assummarizedinExhibit7(nextpage).ivRMIhasbeenattheforefrontinsupportoffinancingmodelsforcoaltransition.Additionalfinancialstrategies,suchasgreenbonds,arealsodiscussedinRMIpublications:https://rmi.org/insight/financing-the-coal-transition/.rmi.org/26FossilFuelTransitionStrategiesGLOBALGUIDEWhilecoaltransitionfinancingisexpanding,especiallyinlightofcommitmentsmadeduringCOP26,thesemechanismsarestillrelativelynewinconceptandexecution.Importantproofpointsareneededtodemonstratetheeffectivenessandadequacyoffinancingtransitionmechanismstofurthermobilizefinancingofthetransition,especiallyfromprivatesources.Exhibit7FourBroadCategoriesofCoalTransitionMechanismsPaymentorotherfinancialbenefitstocoalassetownerstocompensatethemforlostrevenueswhentransitioningtheassetearlyFinancialandinvestmentvehiclesthatpurchasecoalplantswiththeexplicitgoalofdecommissioningthemearlyRefinancingallowscoalassetownerstotakeonnew,low-costdebttoassistintransitionactivities.Giventhattheinterestratesonthisnewdebtarelowerthantheoriginalcostofcapitalforthecoalassets,thiscangeneratesavingsforcustomersandtaxpayersaswellasfreeupcapitalforreinvestmentSupportpackagesdevelopedtocreateandsupportbroadereconomicstructuralchangestodrivealow-carbontransitionthatmayearmarkspecificcoal-retirementorrepurposingfundingaswellastransitioningcommunitysupportactivities•Usefulwhereassetshavesimpleownershipand/orofftakestructureswithaccesstocapital•Legislationorlegalframeworkinplacetoallowforrefinancingtechniquessuchassecuritizationandlowerrisktocreditors•Availabilityofsufficientfinancing•Large-scaletransitiongoalswithconsiderablelinkagestoothersectors(e.g.,coalextraction)•Availabilityofsufficientfinancing•Assetownersareindebtorunabletoaccesslowercostdebt•AvailabilityofsufficientfinancingCompensationManagedTransitionVehiclesBroadTransitionSupportMechanismConsiderationsRefinancingSource:RMIrmi.org/27FossilFuelTransitionStrategiesGLOBALGUIDEStrandedAssetsintheFossilFuelTransitionStrandedassets,inthiscontext,aregoods,suchaspowerplants,thatexperiencearapiddeclineinvalueasaresultofthetransitionawayfromfossilfuels.32Estimatingtheexactvalueofstrandedassetsiscomplicatedbecauseofthecomplexlifecyclesoffossilfuel–generationassets,aswellasthetypeoffutureinvestmentandpolicyscenariostheestimatesuse.Forinstance,researchersataconsortiumofuniversitiesintheUnitedStatesrecentlyestimatedthatstrandedassetsforcoalalonerangefrom$573billionto$1.4trilliondependingonpolicyprojections.33Olderstudieshaveestimatedtherewillbebetween$690billion(aggressivepolicyaction)and$1.38trillion(delayedpolicyaction)instrandedassetsinthepowersectorby2050.34Theextentofriskfortheseassetsbeyondnoneconomicstranding,suchasdroughtandsea-levelrise,haveraisedtheprofileofthetransitionwithinthefinancialcommunity.Regardlessoftheexactvalue,therisksofassetstrandingareagrowingconcernforutilityfinancialstability,customersandbillpayers,investors,andgovernments.EnsuringaJustTransitionWhilethefossilfueltransitionoffersasignificantopportunityforsocioeconomicbenefits,equitablesharingofthesebenefitsisnotguaranteed.vCarefulplanningandtargetedinvestmentintransformationalactivitiescanensurethatcommunitiesandregionsthatwillbeaffectedbythetransitionarereceivingpropersupport.Ifnotmanagedappropriately,workersandtheirfamilies,aswellasthelocalcommunitiesthatareeconomicallydependentonthefossilfuelindustry,willbearadisproportionateburdenofthetransition.vDisadvantagedcommunitieshavebeenthesubjectofhistoricalharmsfromenergydevelopment;however,inthiscontext,“justtransition”refersspecificallytofossilfuel–dependentworkersandcommunities.rmi.org/28FossilFuelTransitionStrategiesGLOBALGUIDEBecauseofthesecomplexities,itisimportanttoensureajusttransitionbymakingsurethecommunitiesandindividualsmostaffectedbythetransitionawayfromfossilfuelsshareinthebenefitsoftheshifttocleanenergy.Thisbeginswithrobust,authenticengagementatthecommunityleveltobuildtrustandunderstandexistingconditions,suchasworkerconcerns,strengths,andskillsets.Thisdialoguealsosupportscommunityknowledgebuilding,creatingafoundationtobreakthroughskepticismthatatransitionwillprovideequitableeconomicopportunities.Recentframeworkshavefocusedoneconomicdiversificationanddevelopment,whichisessentialbecausethesecommunitiesoftenaregeographicallytiedtofossilfuelgenerationorproduction,whichmaynotoverlapdirectlywithnewopportunities.35Forexample,inareasdependentonthefossilfueleconomyintheUnitedStatesandtheUK,whereliberalizedmarketsandcompetitiveeconomicforceshavebeentheprimarydriversforfossilfueltransition,thephaseoutofcoalhasledtounmanagedandundesirablecommunityimpacts,suchasjobloss,depressedpropertyvalues,andlowertaxrevenues.36IntheUK’scase,thesecommunitiescorrelatetosignificantlylowerrmi.org/29FossilFuelTransitionStrategiesGLOBALGUIDEEnergyTransitionJustTransitionExhibit8FactorsEnablingaJustTransitionNearTermLongerTermWorkertransitionassistanceAppropriateworkerretrainingandjobplacementEquitabledistributionofbenefitsStakeholder-centeredengagementanddialogueCommunityeconomicdevelopmentCustomized,sector-specificeconomictransformationstrategylevelsofeconomicwell-being,includingregionalgrossdomesticproduct(GDP),income,healthoutcomes,andothermeasures,indicatingthatevenasthecountryispoisedtobecomethefirstadvancedeconomytoexitcoalentirely,thecostsandburdensofthetransitionarenotbeingequitablyborneacrosscommunities.37Inregionspreparingforthetransitionawayfromcoalmorepurposefully,newmechanismsarebeingintroducedtomanagethecommunityandsocioeconomicimpactsofthecoalexit.Somecountries,suchasCanada,areexploringstakeholder-driveneffortstounderstandlocalneeds,whileothers,suchasGermany,havedevelopednationalpoliciestoassistinmanagedeconomicdiversificationandteachingworkersnewskills.38AsshowninExhibit8,ajusttransitionwillrequireinputfromstakeholders,aswellascoordinatedactionbygovernmentsandindustries,tobesuccessful.Source:RMIrmi.org/30FossilFuelTransitionStrategiesGLOBALGUIDESupportingajusttransitionintheGlobalSouthhasbeenamorerecentfocus,especiallyconsideringclimatecommitmentsmadeatCOP26.TwonotablecommitmentsincludefinancialsupporttoSouthAfricathroughtheJustEnergyTransitionPartnership,andsupporttoSoutheastAsiancountriesviatheAsianDevelopmentBank.Bothinitiativesareaimingtosupportgovernments,industry,communities,andcustomersindealingwiththevariouscomplexitiesofcoaltransition,includingtechnicalsupportforcountry-drivenpolicyinterventions,industrialstrategy,regulatorydevelopment,workertraining,andcapacitybuilding,aswellasbroadereconomicdevelopment.Inabroadersense,cleanenergydevelopmentalsocanbeasourceofinjustice.Landuse,lossoflivelihood,andenvironmentaldamageareconcernsforcommunitieshostingrenewablesinvestmentsorthesupplychainsthatenablethem.39Giventhis,firmsandgovernmentswillneedtoensurethatcommensuratesupportandfocusaregiventobothsidesofthetransition.Asthecleanenergytransitionaccelerates,knowledgeandlessonslearnedwillneedtobeexchangedamongallregionstocontinuallyimproveandexpandaccesstosolutions.Mostimportantly,howcountrieswillmanagebroaderfossilfueltransitionsbeyondcoal,suchasoilandgas,isstillanimportantpolicyfocus.Giventheinfluenceofpetroleumintheglobaleconomy,majorshiftscouldprovetobeasdisruptiveasthecommoditysupercycleitself.GLOBALGUIDErmi.org/31FossilFuelTransitionStrategiesKeyChallengesandOpportunitiesintheFossilFuelTransitionAsthetrendsdiscussedintheprevioussectionillustrate,thetransitionawayfromfossilfuelsintheelectricitysectorcanbelimitedbyavarietyofbarriers,rangingfromtechnologiestoinstitutions.Manyoutside-the-sectorfactorshaveanimpactaswell,fromgrowingdemandduetoelectrificationtoupstreamsuppliesoffossilfuels.Thesechallengesdonotapplytoallplacesinequalmeasure.Countriesseekingtoexpandtheirgenerationsystemstoindustrializefacedifferentpressuresfromadvancedeconomieswhoseannualelectricitydemandisessentiallyflatorfalling.Ingeneral,however,toacceleratethefossilfueltransition,innovationisneededintwooverarchingareas:•Thedirtiestplantsneedtotransitionquicklywithminimalimpactstocommunitiesandcustomers.•Newcleanenergyresourcesneedtobedevelopedtotaketheplaceoffossilfuel–generationassetsandtomeetnewelectricitydemandgrowthinafairandequitablemanner.Exhibit9(nextpage)summarizesthebiggestchallengesandopportunitiesfacingthefossilfueltransitiontoday.Manyotherchallenges,suchaspolicies,gridreliability,andmarketstructuresalsormi.org/32FossilFuelTransitionStrategiesGLOBALGUIDEExhibit9KeyChallengesandOpportunitiesintheFossilFuelTransitionviFiscalincentivesincludevalueaddedtaxes(VATs)orexemptions,incometaxesorexemptions,importtariffs/taxesorexemptions,andCertifiedEmissionReduction(CER)/RenewableEnergyCertificate(REC)salestaxexemptions.GOVERNMENTSANDSTAKEHOLDERSChallenges•Misalignmentsbetweenfiscalincentivesandpolicygoals(againstfossilfuelsorforcleanenergy)vi•Complexbureaucracytoinitiaterenewablesdevelopment•Energysecurityandglobalgeopoliticalconcerns•OppositionfromcommunitiesandworkforceswhoaremostatriskduringafossilfueltransitionOpportunities•Promotethedevelopmentoforuseappropriatefiscalincentivesforrenewableprojectsandreducethoseforfossilfuels•Streamlinepermittingandapprovalprocessesfornewrenewableprojects•Providetimely,accurateinformationtodecisionmakersandstakeholderstodemonstratethevalueofrenewablesinvestmentsandfossilretirements•Neweconomicandcommunitydevelopmentprogramsand/orworkertrainingforfossilfuel–dependentcommunities•DevelopmentofproofpointsandsupportforcapacitybuildingforregulatorstosupportthetransitionoffossilfuelassetsExhibitcontinuedonthenextpagehaveanimpactonthefossilfueltransitionandwillbecoveredingreaterdetailincompanioncatalystreports.Others,suchascriticalmineralsupplychains,areimportant,butbeyondthescopeofthisseries.ECONOMICPRESSURESWITHINTHETRANSITIONChallenges•Fossilfuelsubsidies•Lowcostsoffossilfuelsinresource-abundantareas•Lackofcarbonpricingorotherinternalizationmechanismsforemissions•EconomiclinkagestoextractiveindustriesOpportunities•Fossilfuelsubsidyreform,especiallythroughthelensofbetterfiscalmanagement•Investmentinrenewabletechnologyandappropriatefiscalstructurestomakerenewablesmorecompetitivewithfossilfuels•Carbonpricing,carbonmarkets,andtaxmechanismstointernalizecarbonemissionsimpactswhenmakingdevelopmentandprocurementdecisionsandtomonetizethevalueofemissionsreductions•Developmentoflocalcapacitytosupporttransition,includingsupplierandworkforcedevelopmentrmi.org/33FossilFuelTransitionStrategiesGLOBALGUIDEExhibit9KeyChallengesandOpportunitiesintheFossilFuelTransition,cont.FINANCINGCLEANENERGYANDTRANSITIONPROJECTSChallenges•Availabilityoffinancing—especiallylocal—tosupportprojects•Highcostofcapitalinsomejurisdictionsduetoperceptionofrisk•Lengthyandcumbersomeprocessestoaccessfinancingwhenavailable•Projecteconomicsandupfrontcapitalcostofprojects•Lackofrobustpipelineofcleanpowerprojects•Debt,strandedassets,andotherfinancialchallengesofgovernmentsandutilities•LackofenablingenvironmentthatsupportsprivateinvestmentOpportunities•Financingmechanisms,facilities,andcapacitybuildingtosupportfossiltransitionorrenewabledevelopments•Trainingandsupportsystemstoaidinaccessingavailablefinancing•Targetedinterventionstode-riskandleverageprivatecapital,andlowercapitalandoperationalexpensesfornewcleanenergyprojects(includingdemand-sideinterventions)andassettransitions•Provisionoftransitionsupporttoworkersandcommunities•DevelopmentoftransitionmechanismsandconcessionaryfinancingtoacceleratefossilfueltransitionwhenmarketandregulatorybarriersexistChallenges•Poorgridreliabilityincertainlocationsdrivesinvestmentinbackupgenerators•Limitedorinsufficienttransmissioncapacity•Oversuppliedgridsandlackofflexibilityfromcontractedcapacity•Dispatchprioritymaynotalignwiththemosteconomicgeneration(e.g.,coaldispatchedbeforecheaperrenewables)INFRASTRUCTUREANDPLANNINGOpportunities•Investmentingridmodernizationandtransmissionexpansion•Deploymentofnewtechnologiestosupportcurrentgridcapacities•Priorityinterconnectioninstrumentsandeconomicdevelopmentzonesforrenewableprojects•Innovativepolicyandregulationsolutionstoensurethemosteconomicresourcesaredispatched•Creation,expansion,andimprovementstocompetitivemarketsthatsupportefficientresourceinvestmentsandoperationsSource:RMIrmi.org/34FossilFuelTransitionStrategiesGLOBALGUIDEHowFossilFuelTransitionStrategiesCanSupportPriorityOutcomesToguideregional,national,andlocaldecisionmakersastheynavigatethesechallengesandopportunitiesinachievingclimatealignmentandotherpower-sectorpriorities,therearesevenuniversaloutcomesthatcanbeusedasindicatorsofprogressinpower-sectortransformation.Thesesevenoutcomesarefurtherdescribedintheseries’PointsofProgress—AnIntroductiontoRMI’sGlobalEnergyTransformationGuide:Electricityreportandrepresentcriticalpower-sectorobjectivesthatindustryleaderswillberequiredtoconsiderandplanforinpolicy,regulations,andinvestments.Theseuniversaloutcomesareaimedatachievingthreeprimarygoals:(1)ensuringafairandinclusiveenergytransition,(2)creatingasystempoisedforsustainablegrowth,and(3)increasingtheefficientutilizationofcleanenergyassets.Givencountries’differentprioritiesastheytransitionawayfromfossilfuels,itisimportanttounderstandhowdifferentstrategiesandapproachescanmakeprogresstowardthesesevenoutcomes.Whilesomeoutcomesmaybemoreimportanttocertaincountriesthanothers,theyrepresentcriticallensesorcriteriatouseinthedesignandimplementationofnewsolutions.rmi.org/34FossilFuelTransitionStrategiesGUIDEGLOBALGUIDEExpandAccessandEnableEconomicDevelopmentrmi.org/35FossilFuelTransitionStrategiesEnsureafairandinclusiveenergytransitionCreateasystempoisedforsustainablegrowthIncreaseeicientutilizationofcleanassetsImproveenergyintensityAcceleratecleanenergyadoptionReducedependenceoncoalGlobalEnergyTransformationExpandaccessandenableeconomicdevelopmentPromoteaordabilityandequityEnsureenergyreliabilityandresilienceSecureutilityfinancialstabilitySevenPriorityOutcomesandThreeOverarchingGoalsEnsureaFairandInclusiveEnergyTransitionThefossilfueltransitionisopeningupunprecedentedinvestmentinacleanereconomy.AjointanalysisbetweenIEAandtheIMFfindsthatinanet-zero-by-2050pathway,globalenergyinvestmentwouldsurgetoaround$5trillionby2030andwouldadd0.4%toannualglobalGDP,viiputtingglobalGDP4%higherin2030comparedwithcurrenttrajectories.40Thisrepresentstremendousgrowthininfrastructureandhumancapitalthatwillcatalyzeneweconomicgrowththroughincreasedaccesstoservices,newenterprises,andsavingsonfuel.41viiSimilarly,IRENA’sclimate-alignedpathwayestimatesthetotalenergyworkforcecouldbeat122millionby2050,ofwhich43millionwouldbeinrenewableenergy.Thiswouldbeupfrom12millionin2020,astartling260%increase.Inmostgeographicalareas,thefallingcostofrenewablesoutcompetesotherformsofgeneration,especiallycoal.Savingsfromcleanenergyresourcescanhelpmitigatefinancialimpactsonutilitiesduringthetransition,creatingtheopportunitytopassonsavingstocustomersandreinvestincleanerresources.Additionally,manycountriessubsidizepower,fossilfuels,orboth,distortingtheeconomicsofpowerproducers.Thisprovidesaddedcomplexitywhendevelopingtransitionpackagesbecauseitartificiallylowersprices.Take-or-paycontractswithgasorcoalsuppliersorlong-termPPAsalsolockingenerators,evenwhenfossilfuelsarenotthemosteconomicoption.ThisisevidentinplacessuchasIndonesia,wherestate-ownedutilityPLNismanagingthecomplexityoftransitioningdespiteexistinglong-termagreements.42Furthermore,thefossilfueltransitionhasseveralimplicationsatthecommunitylevel,andstrategiesshouldaccountforbothenvironmentalandsocioeconomicdynamicsofoperatingandretiringplants.Becauseofthesetensions,itisimportantthatcountriesfocusonajusttransition,onethatensuresthatthecommunitiesmostaffectedshareinthebenefits.Additionally,disadvantaged,marginalized,andvulnerablecommunitieswithlesspoliticalpowerareoftenaffectedmostbypollutionfromfossilfuelplants.Recentstudiesestimatethatoneinfivedeathsworldwidearelinkedtofossilfuelairpollution.43Althoughbeyondthescopeofthisreport,itiswelldocumentedthatthesecommunitiesbearthebruntofilleffectsfromfossilfueldevelopmentanduse.44Atransitionawayfromemittingresourceswillhelpprovidebenefitsbeyonddecarbonization.GLOBALGUIDErmi.org/36FossilFuelTransitionStrategiesPromoteAffordabilityandEquityEnsureaFairandInclusiveEnergyTransitionSavingsfromcleanenergyresourcescanhelpmitigatefinancialimpactsonutilitiesduringthetransition,creatingtheopportunitytopassonsavingstocustomersandreinvestincleanerresources.Notwithstandingeffortstocurbemissions,climatechangeisdrivingunprecedentedweathereventsworldwide.45Theseweathereventshavetwomainimplicationsrelevanttothefossilfueltransition:•Creatingunpredictabledemandpatternsingrids,especiallyinareaswithwidetemperaturebands,withimplicationsforgridplannersaroundtheglobetaskedwithforecastingloadtoensurereliablesupply•ForcingfossilgenerationoutagesduetofuelinsecurityGLOBALGUIDEEnsureEnergyReliabilityandResiliencermi.org/37FossilFuelTransitionStrategiesGlobalClimateExtremesandtheGridTheeffectsofglobalclimatechangearechallengingtheelectricitysystemincomplexanddiverseways.Theseimpactsareinfluencinghowpeopleareusingpoweronthegridaswellastheresilienceandreliabilityofthegriditself.Forexample,inFebruary2021,theUSstateofTexasfacedhistoriccoldweatherconditions,causingcustomerdemandtoexceedeventhemostextremewinterforecasts.Forty-sixpercentofthestate’scoal,gas,andnuclearcapacitywentdown,causingblackoutsacrossthestateforuptofourdays.46Inadditiontothe200attributabledeaths,economicdamagewascloseto$200billion.47Globalclimatechangeisalsoresponsibleforanincreaseintheintensityoftropicalcyclones.48Caribbeanislandsareparticularlyvulnerable,withsomeislandsexperiencingmorethan11majorhurricanessince1980.49SolarsystemsandminigridshaveprovedtobeparticularlyresilientinplacessuchastheBahamasandPuertoRico.50Notonlydotheseresourceshelptodecentralizesystempointsoffailure,buttheyalsoprotectislandsfromthevolatilityoffossilfuelimportsduringrecovery.CreateaSystemPoisedforSustainableGrowthGLOBALGUIDErmi.org/38FossilFuelTransitionStrategiesLastly,Brazilhasachievedremarkablegrowthsincethe1970s,makingelectricityaccessnearlyuniversalthroughinvestmentsincleanenergy—primarilyhydropower,whichsuppliesmorethan60%ofthegrid.51During2021,however,theworstdroughtsin20yearsbroughtreservoirstoalmostrecordlows,requiringasurgeinLNGimportstomeetenergydemands,exposingBraziltohigherfuelpricesandcommodityvolatility,aswellasincreasingemissions.52Asoperatorsorientgridstowithstandtheincreasingfrequencyofextremeclimateeventsandaddresstheunderlyingcausesoftheseevents,theymustshiftattentionawayfromfossilfuel–basedcentralgenerationtoflexible,cleansolutionsthatcanberapidlydeployed,aswellasdistributed,anddemand-sideresourcesthatcanrespondinrealtime.Additionally,afossilfueltransitioncanincreasedomesticenergysecuritybyshiftingawayfromimportedfossilfuelsandbuildingmorelocalizedresourcesandinfrastructure.TheeffectsofresourcesecurityhaveplayedoutvisiblyinEurope’sresponsetoRussia’sinvasionofUkraine.ThereductioninfossilfuelimportshasplacedEuropeinaprecariouspositionrequiringimportsfromnewlocationsthatareplacingcostpressuresoncustomers.53Similarly,countriesdependentoncoalplacetheirtrustinonlyasmallnumberofmajorproducers,50%ofwhichareinChina.54Transitioningawayfromfossilfuelstorenewableshelpsseparateelectricityproductionfromvolatileinternationalcommoditymarkets,providingahedgeagainstrisingcosts.55CreateaSystemPoisedforSustainableGrowthGLOBALGUIDEThetransitiontolow-andzero-carbonelectricitygivesutilitiesauniqueopportunitytoreevaluatecurrentbusinesspracticesandmodels.Asutilitiesdeployhighersharesofcleanenergyresources,theycantakeadvantageoflowervariableoperatingcosts,suchasforfuel(oreveninfrastructureoperationandmaintenancewithenergy-efficiencygains).Thisisespeciallyimportantasanyenergydevelopmentisoftencapital-(anddebt-)intensive,makingitimportantthatthattheycanattractappropriateinvestments.Manycountriesarefacinguniquechallengesaswell.TheeconomiesofIndonesiaandSouthAfrica,forexample,havehighlevelsofintegrationwithcoalextractionanduse,makingtransitiondependentonamoreholisticchangeintheeconomy.Governmentsandutilitiesinthesecountriesareincreasinglylookingtowardinnovativefinancialmechanismsthatcanassistwiththetransition.Coaltransitionmechanismsaregainingtraction,butuseofcommercialfinancinginstruments,includingsecuritization—whichcanlowercostsforcustomersandutilitieswhilefreeingupcapitaltoinvestinnewcleanenergytechnologies—remainlimited.56Asthetransitioncontinues,ensuringthatutilitiesremainfinanciallyviable,especiallyinareasoftheworldwithoutcost-reflectivetariffs,willbeahugechallenge.rmi.org/39FossilFuelTransitionStrategiesSecureUtilityFinancialStabilityCreateaSystemPoisedforSustainableGrowthGLOBALGUIDEAsthetransitioncontinues,ensuringthatutilitiesremainfinanciallyviable,especiallyinareasoftheworldwithoutcost-reflectivetariffs,willbeahugechallenge.GLOBALGUIDErmi.org/40FossilFuelTransitionStrategiesImproveEnergyIntensityAsfossilfuelsarephasedoutoftheelectricitymix,itiscriticalthattheyarereplacedwithcleanenergyresourcestoensuresafe,affordable,andreliableelectricityservice.Thisisespeciallyimportantincountriesthatareindustrializing,wheredemandforelectricityisoutpacingtheabilityofrenewableenergiestocomeonline.57Utilities,customers,andpolicymakerscantakeadvantageofthequickestandcheapestenergyresourceavailable—energyefficiency—byreducingenergyintensityandavoidingtheneedforneworreplacementsourcesofgeneration.58Tomeetnet-zerogoals,energyefficiencyneedstoroughlydoubleby2050.59Additionally,whilerenewablesmayleadinpower-sectordecarbonization,theseassetswillneedtobesupportedthroughdemand-sideresourcessuchasdemandresponse,aswellasgridmodernizationandoptimizationthatcanreducepowerlosses.Insomecases,power-sectorlosses(includingtransmission,distribution,andcommercial)top20%,representingperhapssomeofthecheapestsourcesofcleanenergyglobally.60AccelerateCleanEnergyAdoptionDuetodecliningcosts,ambitiousclimatecommitmentsacrossactors,andtechnologybreakthroughs(includingstorage),cleanenergydeploymentisgrowingatarecordpace.However,theIEAestimatesthatrenewableenergydeploymentmustdoublebeyondcurrentforecaststobeclimate-aligned,whichincludesreplacementgenerationfortransitioningfossilfuelassetsaswellasnewdemandgrowth.61IncreaseEfficientUtilizationofCleanAssetsGLOBALGUIDErmi.org/41FossilFuelTransitionStrategiesIncreaseEfficientUtilizationofCleanAssetsAsshowninExhibit10,by2026,renewablecapacityisprojectedtogrowby4,800GW,though80%ofitfallsintoonlyfourmarkets.Cleanenergyprojectsarealsolimitedbytheabilitytoaccessfunding.Manyemergingmarketsanddevelopingcountrieswillneedaccesstoawidevarietyoffinancing,eitherthroughconcessionarylendingorblendedfinance,includinggreenbanksandbonds.Thisensuresthatasdevelopersandproponentsde-riskprojects,thecostofcapitalisaffordableforallcountries.China43%RestofWorld20%Europe18%UnitedStates12%India7%Exhibit10ProjectedShareofGlobalRenewablesCapacityGrowthby2026inKeyMarketsSource:IEA,Renewables2021:Analysisandforecaststo2026.Allrightsreserved;asmodifiedbyRMIEnergymodelingbytheIEAandotheragenciesisstartingtoconsideragreaterrangeoftechnologiestomeetlocalplanningobjectives,thoughtheyhavenotyetbeendeployedbeyonddemonstrations.Theyincludelong-durationstorage,greenhydrogen,next-generationnuclear,andcarboncapture,use,andstorage.ReduceDependenceonCoalDespitephaseoutcommitments,amajorityofexistingcoalcapacityisnotclimatealigned.Exhibit11(nextpage)showsthatnearly95%ofcoalcapacitywillnotalignwithIEA’sNet-ZeroPathway.ThisGLOBALGUIDErmi.org/42FossilFuelTransitionStrategiesIncreaseEfficientUtilizationofCleanAssetscapacityisheavilyconcentratedincountriesthatarenotpartoftheOrganisationforEconomicCo-operationandDevelopment(OECD),agroupofmainlyadvancedeconomies.GW5001,0001,5002,000TotalCoalCapacityPhaseoutCommitments(IEANetZero–Aligned)PhaseoutCommitments(NotIEANetZero–Aligned)Net-ZeroCommitments(NotIEANetZero–Aligned)NotCommittedNon-OECDOECDExhibit11GlobalCoalCapacityandPhaseoutCommitmentsSource:RMIanalysis;GlobalEnergyMonitor,“CoalPlantTracker”RecentstudiesbyRMIandourpartnersshowcoaleconomicsisrapidlychangingatagloballevel,thoughchallengesstillexistinlightofrecentenergymarketdisruptions.62DespitecommitmentsatCOP26,itisestimatedthat79%ofcommittedcoalretirementsneedtobeacceleratedtokeepclimatealignment.63Theglobaltrendsdiscussionabovehighlightssomeofthemethodsthatcountriesareusingtoreducedependenceoncoal.Incountrieswherecoalisstilleconomical,strategicoperatingdecisionscanbemadetominimizerelianceonthisresource.GLOBALGUIDErmi.org/43FossilFuelTransitionStrategiesFlexibleCoalHistorically,coalplantshavebeendesignedtooperatecontinuouslyattheirmaximumratedpower.Aslargersharesofrenewableenergyareinterconnected,however,countrieshavelookedtoreducerelianceoncoal.Thishasdrivenmanyutilitiesandgridoperatorstoexplorealternativeoperatingconstructsforexistingcoalplantsinwhichtheywouldbedispatchedmoreflexibly.InChina,Germany,andelsewhere,gridoperatorshaveexperimentedwiththeabilitytousecoalplantsasresourcesforpeakpowerneeds(i.e.,“peakers”),aswellasconvertingthemtoseasonaloperations.Thesetrialshavedemonstratedthatitistechnicallyfeasibleformanycoalplantstobeoperatedinthesemoreflexibleways.Usingcoalmoreflexiblycreatesoneoptionforcoal-heavygridstoloweroverallemissionsandminimizeeconomicimpactswhilecleaner,cheapersolutionsaredeployed.64GLOBALGUIDEIncreaseEfficientUtilizationofCleanAssetsrmi.org/44FossilFuelTransitionStrategiesGLOBALGUIDErmi.org/44FossilFuelTransitionStrategiesInnovationintheFossilFuelTransitionAcrossCountriesThefossilfueltransitionisnotanequalpriorityforallcountriesorregions.Wherecountriesarefocusingonit,motivationsvaryandincludeclimatechangeconcernsandcommitmentsaswellasthedesireforcheapergenerationandreducedneedforimportedfuelsingeneral.Forthepurposesofthisdiscussion,economiesaredividedintofourmaincategories,showninExhibit12(nextpage):rmi.org/45FossilFuelTransitionStrategiesGLOBALGUIDEExhibit12InnovationinFossilFuelTransitionacrossCountriesAdvancedEconomiesExamples:•Canada•EuropeanUnion•UnitedStatesExamples:•China•India•Indonesia•MiddleEastandNorthAfricaExamples:•MuchofLatinAmerica•PartsofEasternEuropeExamples:•Sub-SaharanAfrica•PartsofSoutheastAsia•SmallIslandStatesinthePacificHistoricallyresponsibleforthemajorityofemissions;prioritizereliabilityoflargegridswithnear-universalaccessMiddle-IncomeandEmergingMarkets:DynamicElectricitySectorPrioritizeaccess,growth,andaffordability;mayhavehighelectricitylevelsinurbanareas,withlessinrural;highlevelsofinfrastructureexpansionMiddle-IncomeandEmergingMarkets:StableElectricitySectorMayhavehigherlevelsofaccesswithsomeneedinremoteareas;prioritizeensuringgenerationkeepspacewithdemand;oftenestablishedsystembutwithchallengesDevelopingEconomiesLowerlevelsofaccess,especiallyoutsideurbanareas;mayhavelimitedinfrastructureandlowlevelsofreliabilityAdvancedEconomiesInadvancedeconomies,includingmostOECDnations,legacyrelianceonfossilfuelsfordevelopmenthasoftenleftanentrenchedincumbentfossilfuelindustryand/orindustriesheavilyreliantonfossilfuelsupplychains.Majorchallengestothetransitionoftenincludepoliticalbarriersbystakeholdersandgovernments,financingforfossilfueltransitions,economicbarriers,andissuesrelatedtoenergyplanning.Moreprogressivemarketshavetakenstepstoprioritizeclimatechange,afterstakeholdershavepushedforpolicymeasurestotransitiontheelectricitysectoranddriveenergymarketstoevolveorreform.Governmentsatalllevelshavecommittedtoreducingtheuseoffossilfuelsthroughrmi.org/46FossilFuelTransitionStrategiesGLOBALGUIDElaws,regulations,fiscalincentives,andtaxes.Carbonpolicies,rootedinEurope,havebeensomeofthemosteffectiveindrivingdecarbonizationinelectricity,especiallyinNorway,Sweden,andtheUnitedKingdom,aswellasthroughtheEuropeanUnionEmissionsTradingSystem(EUETS).rmi.org/46FossilFuelTransitionStrategiesLoweringEmissionsinNorway’sOilIndustryNorwayhasoneofthelargestandoldestoilindustriesinEurope,withcommercialproductionsince1971.65Norwaywasalsooneofthefirstcountriestoadoptacarbontax,in1991,valuedataround$70pertonforpetroleumproducersonNorway’scontinentalshelf,andthecountryisanactivememberintheEUETS.TheresultisthatNorway’scostofcarbonisamongthehighestintheworld.66Exhibit13OilandGasProductionontheNorwegianContinentalShelfbyLevelofElectrificationNote:Earlyphasenon-sanctionedelectrificationprojectsnotincluded.Source:RystadEnergyEmissionsCube6,000Non-ElectrifiedPartiallyElectrifiedFullyElectrifiedHistoryForecastThousandBarrelsPerDay5,0004,0003,0002,0001,000200520102015202020252030GLOBALGUIDErmi.org/47FossilFuelTransitionStrategiesNotalladvancedeconomieshavemanagedtoprioritizeatransitionawayfromfossilfuels,however.Notably,recalcitrantmarkets,suchassomepartsofAustraliaandtheUnitedStates,facestrongoppositiontotransitionfrompolicymakers,utilities,industry,andaffectedworkers.Politicalandcivilsocietyorganizationshavemadestridestobridgethisdividethroughtargetedcapacity-buildingprogramstoarmutilities,decisionmakers,andadvocateswithinformation,especiallyasrenewableenergycostsfallglobally.Wheregovernmentsarenotresponding,investorsandtheprivatesectorhavetakenadvantageofthegrowingawarenessofclimatechangetomaketheirowncommitments.GroupssuchastheCleanEnergyBuyersAlliance(CEBA)andRE100havecometogethertoreduceinformationalbarriersandenablecorporationstomoreeasilyplan,finance,andprocurecleanenergy.69AnalysisbyBloombergNEFindicatesthatcorporatesustainabilitycommitmentsmakeupthedrivingforcebehindthisrenewedcorporateinterestincleanpower.70AsHelenDewhurst,aseniorSomecompanieshavebeguntolookatreducingemissionsasavaluestream.OneofNorway’slargestproducers,EquinorASA,hasbeenelectrifyingitsoperations,includingmostrecentlythelargeJohanSverdrupfield,whichstartedinOctober2019.Initialdevelopmentofthisfieldincludedaround100MWofonshorepower,primarilyfromhydro,whichallowedEquinortodramaticallyreduceemissions.Afterthesecondphasestarts,aroundtheendof2022,Equinorprojectsproductionintensity(directemissionsperproductionunit)willbejust0.67kgcarbondioxideequivalentperbarrelofoil,amongthelowestintheworld.67AsshowninExhibit13(previouspage),thisexperiencehascatalyzedelectrificationeffortsbyotheroperatorsinNorway,where,by2025,morethan50%ofproductionisanticipatedtobeatleastpartiallyelectrified.68Whiletheindustryitselfisnotgreen,thisshowsthatpolicylevers,suchascarbonpricingandemissionstradingschemes,canbeeffectiveinloweringnetemissions.rmi.org/48FossilFuelTransitionStrategiesGLOBALGUIDEassociatewithBloombergNEF,notes,“Thecleanenergyportfoliosofbigtechcompaniesnowrivalthoseoftheworld’sbiggestutilities.Bigtechfacesmountingpressurefrominvestorstodecarbonizeandthisisreflectedinthesteepincreaseincleanenergyvolumespurchased.”71Largebuyers,includingcompaniesaswellasotherentitiessuchascitiesanduniversities,aresourcingcleanergenerationthroughdirectpowerprocurementintheformofPPAs,agrowingtrendasdemonstratedbyExhibit14.PPAscanlowerrisktodevelopers,whileprovidingamoresecurefinancingandofftakeavenue,especiallyinhigherriskmarkets.72Thisprovidesanavenuetoexpandrenewablesdevelopmentfordevelopers,IPPs,andutilities.10,00020,00030,000201020112012201320142015201620172018201920202021AmericasAsiaEuropeOceaniaGWExhibit14AnnualEstimatedCorporatePPACapacity,byRegionSource:BloombergNEFrmi.org/49FossilFuelTransitionStrategiesGLOBALGUIDEMiddle-IncomeandEmergingMarketswithDynamicElectricitySectorsFossilfueluseisnotablygrowinginindustrializingmarkets,thosemiddle-incomeandemergingmarkets(MIEMs)withhighgrowth,especiallyincountriessuchasChinaandIndia.Asthesecountriesexpandaccessandseektomeetnewdemandfromindustrialization,theyareexploringalloptions,includingfossilfuelsandrenewables.Evenforcountriesinterestedincleaninguptheirelectricitysystems,establishedlong-termPPAswithfossilfuelproviderspresentamajoreconomicbarriertoutilitiesandoff-takersfromtransitioningtolower-costcleanenergysolutions.Novelinterventionswillneedtobedeveloped,suchasthewaycoalplantoperatorsandoff-takersarerenegotiatingPPAstofavorallpartiesaswellasdecarbonizationobjectives.Manycountriesareexploringwaystoincreasetheirrenewablecapacitywhiledealingwithalegacyoffossilfueldevelopment.Newtransitionsupportentities,suchastheAsianDevelopmentBank’sEnergyTransitionMechanismandSouthAfrica’sJustEnergyTransitionPartnership,areprovidingfinancingfacilitiestocoal-heavyeconomiestoreducethecostsandbarriersoftransition.Conversely,countriessuchasChinaarelookingathowtousetheirfossilfleetmoreefficiently,includingbydispatchingcoalgenerationforpeakersupport.Inothercases,countriesaredeployinginnovative,low-costenergy-efficiencyprogramssuchasIndia’sUjala.Variousestimatesshowthatlightingisresponsiblefor18%–27%ofhouseholdelectricityuseinIndia.73Ujalaprovideslow-costLEDsdirectlytoconsumers,whichlowerselectricitydemandandstimulatesanewmarketinLEDmanufacturing.TheprogramoperatorestimatesthatUjalasavesaround48billionkilowatt-hoursperyearandreducesemissionsbyEstablishedlong-termPPAswithfossilfuelproviderspresentamajoreconomicbarriertoutilitiesandoff-takersfromtransitioningtolower-costcleanenergysolutions.rmi.org/50FossilFuelTransitionStrategiesGLOBALGUIDEaround39milliontonsofCO2peryearwhileincreasingsavingsonbills.74Thesetypesofdirectengagementsaremakingmajorstridesinadvancingcleanenergyresourcesingrowingelectricitymarkets.Lastly,manyofthesecountriesstruggletoreducefossilfuelsubsidieswhileensuringanequitabletransition.TheUnitedNationsnotesthatprogressonsubsidyreformhasbeenmixedandslow.75Socialpressures,especiallyonelectedofficials,bythepublicandentrenchedfossilfuelinterestsstandinthewayofpotentialreformsdespitesubsidies’downsides.Middle-IncomeandEmergingMarketswithStableElectricitySectorsNotallMIEMcountriesareexperiencingdynamiceconomicgrowth(andcommensurateelectricitysectorgrowth),andsotransitionchallengesvary.InLatinAmerica,highrelianceonhydropowermakesthegridcleanbutalsovulnerabletotheeffectsofclimatechange.Highlevelsofdroughthavecausedmanygridoperatorstolooktowardfossilfuelstomakeuptheshortfallinsupplywhileotherrenewablesarebuiltout.TheCaribbean,too,facesresiliencechallengeswithclimatechangeasstrongerstormsthreateninfrastructure.76EasternEurope,conversely,facesanentrenchedlegacyfossilfuelsystem,aswellasacomplexenergysecurityrelationshipwithRussia.77AstheRussianinvasionofUkrainehasthreatenedenergysecurity,countriessuchasPolandandRomaniaaretakingrenewableandcleanenergydeploymentmoreseriouslybecausetheycannotaffordtosourcenewgasonthetimelinesWesternEuropeisseeking.78EdgesofinnovationinthesecountriesshowsimilaritiesbetweenindustrializingMIEMsandmoreadvancedeconomies.Forexample,itischallengingtoaccessfinancialinstrumentsandexpertisetorapidlydeveloprenewableenergysystemstoreplaceexpensivefossilfuelrmi.org/51FossilFuelTransitionStrategiesGLOBALGUIDEgeneration(especiallyfromimporteddieselandnowLNG),thoughinnovativepoliciesarehelpingtoovercomethis.Investmentininfrastructureandenergyplanning—suchasthedevelopmentofintegratedresourceandresilienceplanningprocessesinvariousCaribbeancountriesthatintegrateresilienceasakeycomponentinlong-termenergyplanning—highlightsthebestuseoflimitedfunding.Thishasresultedininfrastructurehardeningandgreateruseofrenewableminigridstohelpcreateresilientcriticalinfrastructure.ChileExpandsRenewablesthroughInnovativeBlockAuctionsChilehassetupinnovative,technology-neutralhourlysupplyblockauctionsforindependentpowerproducerstosellelectricitytodistributionutilities.79Evenasearlyas2015,auctionswereawardedto100%cleanenergy,owingmainlytofallingrenewablespricing.80WhatmakesthisremarkableisthattheseauctionsareamongonlyafewplaceswhererenewablescompetedirectlywithconventionalfossilfuelsonacostbasisbyaligningpowerproductionwithPPAsupplycommitmenthours.81Thesehourlysupplyblocks,aswellaslongerleadtimeinconstructionandlongercontractduration(whicharelowerrisktodevelopers),arekeyfactorsinthehighlevelofparticipationandthelowpricesintheserenewablesauctions.ThishashelpedmakeChilealeaderintheregioninnewrenewablesdeployment,wherenearly42%ofallforeigndirectinvestmentinChileisintherenewablessector.82DevelopingEconomiesEconomiesthatarestilldevelopingare,inmanycases,focusedonprovidingfundamentalaccess,especiallyinruralareasthatmayhavelimitedorunreliableinfrastructure.Althoughcertainregionsfacespecialchallenges—forexample,SmallIslandDevelopingStatesthathavelimitedlandandresourcesrmi.org/52FossilFuelTransitionStrategiesGLOBALGUIDE—manydevelopingeconomiesareinsituationsconsistentacrosscontextsthatinclude:•Difficultyaccessingfinancingandexpertisetodeployappropriateenergysystemsandtechnology•Limitedcapacityofpolicymakersandutilitiestoquicklybuildoutelectricitysystems,includingrenewablegeneration•Alackofinfrastructureandenergyplanningprocesses•Uncoordinatedorunclearregulatoryframeworksthatmayunintentionallyslowexpansionofthegrid,renewableenergysupplychains,orworkforcedevelopmentDespitethesechallenges,thesecountriesareattheedgeofanopportunity.Low-costrenewablescandirectlysupporteconomicgrowth,ratherthanfollowingtheintermediaryfossilfuel–reliantapproachthatsomanyadvancedeconomiesarenowmanaging.Toenablethesecountriestotakeadvantageofacleanenergy–basedgrowthtrajectory,newinnovationsinaccesstofinancing,aswellthedevelopmentofarobustpipelineofviablecleanenergyprojects,willbeinstrumental.Privateandpublicorganizationsandfinanciersareworkingtoidentifyandde-riskprojects,especiallyasrisingfossilfuelpricesmaketheeconomicsofrenewablesextraordinarilyfavorable.Additionally,governments,utilities,andstakeholdersareoftenunderfundedandunder-resourcedtosupportcleanenergyinvestment.Supporttoreduceregulatorycomplexity,providerobustsocialandtechnoeconomicanalysis,andensurefinancialviabilityofutilitiesduringthetransitionareallcritical,dependingonthespecificchallengesthecountryormarketisfacing.Otherinnovationsareloweringinvestmentbarriers.ProgramsincludeNigeria’sDemandAggregationforRenewableTechnologyinitiative,whichallowsforaggregatedbuyingofrenewablecomponents,reducingoverheadcostsforthedeploymentofcleanresourcesandsavinganestimated24%onphotovoltaics(PV)rmi.org/53FossilFuelTransitionStrategiesGLOBALGUIDEand40%onstorageprocurement.83Thislevelofcostsavingsisfundamentaltomaintainingastrongcashflowbynascentdeveloperswhoaredeployingcustomer-sitedsolarsolutionsthroughoutNigeria.Inareaswithunreliablegridservice,themarketforfossilfuelgeneratorsisexpansive.Developersandutilitiesareexploringallmannerofsolutionstothis,includingthedeploymentofrenewabledistributedenergyresourcesystemsaswellas“undergrid”solutionsthatbringrenewableenergytoaminigridbutalsoallowforarevenuestreamtoutilitieswhengridpowerisavailable.84Lastly,utilitiesindevelopingeconomiesaresometimesattheforefrontofinnovativebusinessmodels.Value-stacking,forexample,isamodelinwhichutilitiesthatcannotprovidepoweraloneprofitably,combineelectricitywithtelecoms,essentialinfrastructure,orotherservicestoprovideasustainableincomestream.TheUtilityIncentiveStructurescatalystreportwillexplorethisthemefurther,butthisinnovationhasbeeninstrumentalinexpandingelectricityservicetosomeofthehardest-to-reachcommunities.rmi.org/54FossilFuelTransitionStrategiesGLOBALGUIDESpotlightsToillustratethesetrends,emergingchallenges,andopportunities,weanalyzedfourdifferentexperiencesthathighlightinnovativesolutionsbeingpursuedinarangeofcontextsandgeographies.Thesespotlightsfocusoninitiativesthatarebreakingnewgroundorareaddressingathresholdquestiontoaccelerateoneormoreofthesevenpriorityoutcomes.Tochoosewhichinnovationstospotlight,weconsideredhoweachsupportedthesevenpriorityoutcomes,aswellashowscalableorapplicablespotlightsweretootherjurisdictions.Whileweprovidebriefsummariesinthisreport,youcanfindthefullspotlightsonRMI’sGlobalEnergyTransformationGuide:Electricitywebsite.CoalTransitionintheUnitedKingdomOncetheworld’slargestcoalconsumer,theUKisonthecuspofentirelyphasingoutcoalgeneration.In2015,theUKsetatargettophaseoutcoalby2025,butby2020,thecountrymovedthatupto2024.Thistransitionrepresentsperhapsthefastestexampleofrmi.org/55FossilFuelTransitionStrategiesGLOBALGUIDEendingcoalrelianceinanadvancedeconomy,thoughtherearemanylessonslearned,especiallyaroundjusttransition.TheUKusedmanyleversinthetransitionsuchasinnovativepoliciesandcarbonpricing.TheUK’shistoriccoalcommunities,however,havebornethebruntofthistransition.Althoughrecentinterventionsareseekingtoremedythechallenges,amoremanagedapproachmighthavepreventedsomeoftheeconomichardshipstheyface.Kenya’sGrowththroughCleanEnergyDuringCOP26inGlasgow,Kenyamadetheremarkablecommitmenttoachieveafullcleanenergytransitionby2030.Whileambitious,thepledgeisnotasimplausibleasitmightbeinotherplaces.Kenya,infact,hasdeployedsignificantamountsofcleanresourcesinrecentyears,includinghydroelectric,geothermal,wind,andsolargeneration,faroutpacinginvestmentinfossilfuels.Kenyastillfacesanumberofchallenges,suchasaccesstoaffordablefinancing,challenginglogistics,andinstitutionalcapacityissuesthatmakewholesaletransformationdifficult.Nevertheless,Kenyahasshownthatrenewablescanunderpineconomicgrowthopportunitieswhensupportedbytherightinstitutions.OvercomingLong-TermFossilFuel–GenerationPPAsinChileCopperminingmakesupmorethanathirdofChile’stotalelectricityconsumption.Chile’ssystemwasdominatedbyimportedgas,butwhenArgentinaceasedexportingfuel,creatinganenergycrisisin2006–07,pricesrosedrasticallybecausecostlydieselgenerationwasusedtomakeuptheshortfall.Manyminingcompaniessecuredlong-termcoalPPAstoensurecheaper,reliablepower.Reforms,however,includingstructuralchangesinthewholesalemarket,interconnectionofnewrmi.org/56FossilFuelTransitionStrategiesGLOBALGUIDEtransmission,andnovelhourlysupplyauctionblocksthathavecausedadramaticreductioninelectricityprices,haveforcedminingcompaniestoreevaluatetheirPPAs.WhilesomehaveoptedtosimplypaytoterminatethePPAs,otherslookedtomoreinnovativesolutions.EngieEnergíaChile(EECL),forexample,oneofthefourlargestsuppliersinthecountry,soughttorenegotiateitscoalPPAswithoff-takersbyofferingareducedtariffinexchangeforlongercommitments.Thisde-linkedthecoalPPAfromcoalindexing,allowingEECLtopaydowndebtassociatedwiththecoalplantinvestmentandensureaviablecashflowtounderpinfinancingofnewrenewables,whileprovidingoff-takerswithadecliningtariffastheshareofrenewablesinthePPAmixincreased.Stakeholder-DrivenJustTransitioninCanadaandGermanyThoughtfulplanningisrequiredtoensurethatcommunitiesandworkerswhoaredependentonfossilfuelvaluechainsarenotharmedintheenergytransition.Thetransitionawayfromtheselegacyassetsposessignificantriskstothesecommunities,includingjobloss,reductionsinpropertyvalues,losttaxrevenues,remediationandcleanupliabilities,andoveralluncertaineconomicdevelopmenttrajectories.InCanadaandGermany,coaldevelopmenthasbeenconcentratedinareasfarfromthecentersofpowerandwithhigherlevelsofpovertyandlesswealthoverall.Unmanagedlossoftheindustrywoulddevastatetheirlocaleconomies.Assuch,bothcountriestookalargelystakeholder-drivenapproachtoidentifypathwaysforajusttransition.WhereasCanada’sapproachprimarilyfocusedonactionsatthelocallevel,Germany’scoalcommissionwasmoreexpansive,settingbothlocalandnationalpolicyforthecoalphaseout.rmi.org/57FossilFuelTransitionStrategiesGLOBALGUIDEConclusionThetransitionawayfromfossilfuelsisacomplexproblem,thoughthefallingcostofcleanenergyhashelpedreframediscussionsoftheeconomicopportunitythatthetransitionoffers.Thisreporthasidentifiednotonlythecriticalchallengescountriesarefacingintransitioningtheirelectricitysystems,butalsosomeofthekeyopportunitiesandinnovativesolutionsbeingpursued.Ascountriesexploretransitioningawayfromcoal,newsupportmechanismsarebeingexploredinAsiaandSouthAfricatoallowforbroadereconomicchangeswhiledecarbonizing.Theseprocessesaredesignedtoensurethatallpeopleandcommunitiesbenefitfromajustenergytransition.Similarly,refinancingstrategiessuchassecuritization,aswellasblendedandconcessionaryfinancingvehicles,areopeninguptransitionsupportandcleanenergydevelopmentswhileminimizingtheimpactstocustomersandbillpayersinplacessuchasAfricaandtheUnitedStates.Theroleofgasisprovingtobeacontentioustopic,especiallyindevelopingeconomiesthatareseekingreadyaccesstocheapandreliablepower.Whiletheremaybelimitedrolesforgasinspecificcircumstances,therearerisksassociatedwithlockinginagasinvestmentpathway.Kenya,forexample,hasdemonstratedsignificanteconomicgrowthandexpansionofaccessbyinvestinginrmi.org/58FossilFuelTransitionStrategiesGLOBALGUIDEitswidevarietyofavailableresources,includingwind,solar,hydro,andgeothermal.Whilenotallcountriesaresimilarlyblessed,Kenya’sattractivemacroeconomicenvironmentandrelativelystablepolicyenvironmentbroughtinhighlevelsofforeigndirectinvestmenttocounterpotentialfossilfuel–growthoptions.Theroleoftheprivatesectorincreatingandunderpinningdemandinnewrenewableenergiesinplaceoffossilfuelgeneration,aswellasmobilizingtheflowofcapitalawayfromfossilfuelsandintocleanenergysources,isbecomingincreasinglyinfluentialatthegloballevel.BanksintheGlobalNorthhavehistoricallydominatedinvestmentsinnewcoal,forexample,butmanyhavemadecommitmentstolowerthisexposure,andtodate,thetopfinanciersaremainlyconcentratedinEastAsia.Similarly,largecorporationsareincreasinglyseekingcheaper,greenerelectricitysupplies,whichisputtingfurtherpressureongenerators,asseenbymineoperatorsinChile.Finally,thefossilfueltransitionmustensurethatallpeople,especiallythosemostvulnerable,benefitfromit.Newinclusiveprocessesandmoreequitablesolutionsareemergingacrosstheglobe,whetheritisbroadereconomicsupport,asseeninSouthAfrica,orcreatingroomforstakeholderswhowereliterally“atthecoalface”todrivetheprocess,asseeninCanada.Theseeffortsareattractingglobalattentionandhavethepotentialtoscalethroughoutthepowersectorintheyearstocome.Aspolicymakers,utilities,investors,developers,civilsociety,andotherstakeholdersexplorewaystosupportafossilfueltransition,wehopethisreportprovidesinspirationandlessonsfromthoseplacesthatareinnovatinginthefaceofsimilarissues.rmi.org/59FossilFuelTransitionStrategiesGLOBALGUIDEEndnotes1BoomandBustCoal2022,GlobalEnergyMonitor,April25,2022,https://globalenergymonitor.org/report/boom-and-bust-coal-2022/.2TheDirtyFootprintoftheBrokenGrid:TheImpactsofFossilFuelBack-UpGeneratorsinDevelopingCountries,IFC,September2019,https://www.ifc.org/wps/wcm/connect/2cd3d83d-4f00-4d42-9bdc-4afdc2f5dbc7/20190919-Full-Report-The-Dirty-Footprint-of-the-Broken-Grid.pdf?MOD=AJPERES&CVID=mR9UpXC;and“Electricity—InstalledGeneratingCapacity,”TheWorldFactbook,accessedSeptember12,2022,https://www.cia.gov/the-world-factbook/field/electricity/.3“DataandStatistics,”IEA,accessedSeptember15,2022,https://www.iea.org/data-and-statistics.4NetZeroby2050—ARoadmapfortheGlobalEnergySector,IEA,2021,https://www.iea.org/reports/net-zero-by-2050.5PhillipCornell,“SizingtheEnergyTransition:HigherInvestment,MoreJobs,andEconomicGrowthina1.5°CPathway,”Economist,January25,2022,https://impact.economist.com/sustainability/net-zero-and-energy/sizing-the-energy-transition-report.6IanParry,SimonBlack,andNateVernon,“IMFWorkingPaper:StillNotGettingEnergyPricesRight:AGlobalandCountryUpdateofFossilFuelSubsidies,”IMF,September2021,https://www.imf.org/en/Publications/WP/Issues/2021/09/23/Still-Not-Getting-Energy-Prices-Right-A-Global-and-Country-Update-of-Fossil-Fuel-Subsidies-466004;and“KeyFindings,”WorldEnergyInvestment2020,IEA,2020,https://www.iea.org/reports/world-energy-investment-2020/key-findings.rmi.org/60FossilFuelTransitionStrategiesGLOBALGUIDE7StevenMufson,“WhatCouldFinallyStopNewCoalPlants?PullingthePlugonTheirInsurance,”WashingtonPost,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