PARIS — Demand for electricity is set to explode in the next two decades, which could be good news for the environment but a challenge for governments and power companies, the IEA said Tuesday.

"The electricity sector is experiencing its most dramatic transformation since its creation more than a century ago," said the International Energy Agency in an annual energy outlook that focused on electricity.

The IEA forecast that energy demand would be more than 25 per cent greater by 2040, owing in large part to expanding activity in India.

Global demand for electricity is expected to surge by around 60 per cent, at which point it would account for about one quarter of the total, from 19 per cent at present, while coal and oil diminish in importance.

Developing economies will need 90 per cent more electricity, for vehicles in China and air conditioning in hotter climates, said the report. Rich countries were also tipped to require more power for electrically based transit systems.

To provide the extra power, the use of wind turbines and solar panels would grow substantially, said the report.

All renewable sources including hydro-electric are to account for 70 per cent of the increased output.

Political support and advances in technology meant that the cost of electricity produced by renewable sources had fallen, and that of solar energy was expected to decline further by more than 40 per cent over the 20-year period.

Meanwhile, the share of electricity produced by coal should drop to about one quarter of the total from roughly 40 per cent today.

Renewables are thus tipped to follow an inverse curve and take coal’s place.

Natural gas at 20 per cent and nuclear energy at 10 per cent are to remain essentially stable.

Flexibility

While the increase in renewable energy should benefit the environment, it will nonetheless also pose a challenge, not least because such sources depend on the availability of sun or wind.

"With higher variability in supplies, power systems will need to make flexibility the cornerstone of future electricity markets in order to keep the lights on," the IEA said.

"Many countries in Europe, as well as Mexico, India and China, are set to require a degree of flexibility that has never been seen before at such large scale," it added.

Governments and power companies will have to invest more than US$2 trillion a year in new supplies, reform energy markets, improve connections between grids, and pursue technology such as "smart meters" and improved batteries, the report said.

The IEA also imagined a scenario under which an even bigger push towards electricity occurs, with demand leaping by 90 per cent instead of 60 per cent by 2040.

That would be an increase roughly equivalent to twice the current demand for electricity in the United States.

With half of all vehicles operating on electricity, local air quality should improve noticeably, it noted. — AFP