Global power generation challenges and opportunities
Rapid shifts in demand mean power will be produced in different places and at different times, creating a new landscape for utilities, developers and IPPs (independent power producers)
Navigating power demand growth
Power generation over the next few decades will be dominated by the need to satisfy demand growth, while sharply curtailing carbon and methane emissions. Increased policy support, ESG pressures and generally lower construction costs will broadly favour renewable energy development.
Population growth and the electrification of the global energy system will also drive huge changes in how electricity is produced and how much is required. Utilities in mature markets have not had to address this rate of growth since the last century. This will make it difficult to forecast electricity prices, their hourly shape and the value of different types of generator resources.
Understanding intermittent solar and wind power production
The growing proportion of intermittent solar and wind power production on grids could drive up demand for baseload capacity from nuclear and hydro projects, alongside battery storage. It should also encourage the development of new long duration energy storage technologies.
The role of new thermal capacity remains uncertain but rising consumption is already encouraging new gas-fired capacity in the US, with coal back on the table in Germany, Poland and Malaysia. China started construction of 94.5 GW of new coal plants in 2024, the highest figure in a decade.
Mismanaged planning can leave utilities indebted, so understanding power prices and the ability of assets to capture revenue in volatile markets is critical to project valuation. Industry players must be nimble and adapt their strategies quickly in a fast-moving landscape.
The key challenges facing utilities, developers and IPPs
The investment landscape is quickly changing what is competitive and what is not. Benchmarking against competition is necessary for survival with growing pressure on IPPs and developers to make sure they build the right projects in the right locations, at a time when obvious project locations with cheap interconnection have largely been taken.
The process of developing new generation capacity is becoming increasingly sophisticated, with most projects not designed, developed and operated by a single company at every stage. Some developers have carved out niches for themselves by specialising in progressing projects at a particular stage.
Developers have matured but interconnection queues have increased project timeline and cost risks. Although there is plenty of capital to invest in new projects, the value of assets can be uncertain until after time and money has been invested in land rights and permitting.
The commercial viability of projects is vulnerable to inflation, financing costs and supply chain constraints, all of which have become more unpredictable following the Covid-19 pandemic and the Russian invasion of Ukraine. Developers may need to index PPAs to inflation or interest rates to avoid a repeat of the offshore wind project cancellations that hit offshore wind in 2023-24.
Populist sentiment has triggered a backlash against the energy transition in some countries. This is likely to affect the pace of change rather than its direction in most markets, as solar and wind power typically offers the lowest cost power production.
Protectionist policies present cost and supply risks to an industry heavily reliant on imports. The US and EU are attempting to promote their own manufacturing supply chains, partly to reduce reliance on Chinese imports.
Rising power demand: what utilities, developers and IPPs need to know
- Demand for new generation projects is booming, creating widespread investment opportunities for developers in most markets. Renewable assets are being deployed at record speed through commercial advantage and public policy support, but the industry is more complicated than ever before.
- The cumulative impact of demographic change, the electrification of heating and transport, and booming data centre development will increase global power demand by 3.4% a year through 2026.
- According to the IEA, the world will add 5,500 GW of new renewable capacity over 2024-30, three times more than over 2017-23. This will push solar and wind’s share of global generation to 30% by 2030.
- Record levels of interconnection requests are forcing utilities to redefine their IRPs and supply/demand outlooks. Many utilities are unsure how to meet near-term load growth without significant retirement delays or new thermal plants.
- Planned nuclear, coal and gas plant retirements pose a challenge to utilities in terms of having to replace existing generation while overseeing an overall increase in capacity. Demand pressures could drive an increase in repowering activity.
Specific energy transition concerns for utilities, developers and IPPs
Securing sufficient land
Securing sufficient land for new solar, wind and storage projects is likely to become increasingly challenging in more densely populated countries. Spreading generation over wider geographical areas will require even more grid development, both on- and offshore.
Increased electricity demand
Balancing the need to reduce emissions with ever-increasing demand for reliable electricity is posing a huge challenge for utilities. Many areas in the industrialised world are likely to follow California in coupling battery storage with most solar projects.
Component procurement strategies
Developer strategies are constantly evolving to take advantage of changing tariff regimes and shifts in manufacturing locations, such as Chinese firms shifting capacity to Southeast Asia.
The growth of EVs
The growing uptake of electric vehicles and construction of new data centres will drive up night time power consumption, requiring more energy storage and/or baseload capacity.
Key reasons to act now
- Generous government investment incentives are supporting investment. Inflation Reduction Act tax credits helped add 75 GW to the US grid in just two years, but these benefits could be scaled back, while European governments are tweaking Contracts for Difference to maintain the pace of development for offshore wind.
- Growing demand is pushing up wholesale power prices. Large load customers are concluding long-term PPAs to achieve clean energy goals, particularly in the US.
- While the challenges of demand growth and market volatility loom large, the prize for utilities, developers and IPPs that can adapt most quickly will be substantial.
- M&A activity is going strong in clean energy but political and tariff uncertainty has left investors constantly defining their strategies and hedging their cost and procurement risks.
How Lens Power & Renewables can help
Lens Power & Renewables offers a complete data analytics solution to strengthen power market investment strategies for the energy transition. It connects regional power market fundamentals and renewable technologies, including solar, wind and energy storage data and insights, in an easy-to-use, unified platform.
Secure access to a depth of authoritative information and insight. Only by leveraging the highest quality data and insights covering every stage of the value chain is it possible to understand the complex and interconnected dynamics of global energy and materials markets.
Key features of Lens Power & Renewables
Screening and benchmarking
Screening and benchmarking
Screen and benchmark companies, portfolios and power generation assets in every market. Wood Mackenzie is the leading provider of power price curves, with trusted forecasts out to 2050.
Investigate power market dynamics
Investigate power market dynamics
Investigate power market dynamics of supply, demand and LCOE for all markets and technologies.
Benchmark corporate asset portfolios
Benchmark corporate asset portfolios
Benchmark corporate asset portfolios with full transparency into the development pipeline.
Screen for development sites
Screen for development sites
Screen for development sites with unique geospatial layers and filters.
Powerful API service
Powerful API service
Powerful API service to seamlessly integrate Wood Mackenzie data into your own proprietary systems and BI tools, including Excel, Power BI, Spotfire and Tableau.
Validate portfolio strategies
Validate portfolio strategies
Minimise risk by validating portfolio strategies against Wood Mackenzie data and models.
Intuitive interface
Intuitive interface
Increase productivity and lower costs with immediate insights using an intuitive interface fit for all users.
Price forecasts
Price forecasts
Historic settled power prices, real-time, long-term zonal forecasts, and nodal price projections to create end-to-end analysis.
What sets Wood Mackenzie apart?
- Reliable, accurate cost trends: Lens delivers detailed, component-level pricing customised to your assets, empowering optimal strategy development, budgeting and ROI assessments.
- Demand and supply outlooks driven by bottom-up analytics: We model what is feasible, developing models that are interconnected to look at inflection points. In times of demand and supply uncertainty, our teams focus on fundamental drivers.
- Price curves that reflect the output of hundreds of analysts and thousands of hours of model simulations: Lens models look at the price impacts of policy and economics. Every assumption is defined and outlined, giving users confidence in our scenario outlooks to align with their business.
- Underpinned by Wood Mackenzie’s renowned expertise across the globe: Our industry analysts give you impactful perspectives on policy, demand, development opportunities, technology trends, market reforms, grid integration, supply chain constraints and risk – all with a view to evolving your power market investment strategies.
Unrivalled resources
Our team comprises over 2,000 specialists covering all areas of the energy supply chain
We are uniquely capable of delivering analysis across interconnected markets
Based in 30 global locations, we work in close partnership with energy producers, governments, financial institutions and utilities around the world