Hormuz Shock Engenders Broader Global Investment In Electricity To Strengthen Energy Security

A broader electricity investment among countries is aiming to strengthen their energy security, boost competitiveness and reduce emissions through faster electrification of their economies.

According to a special report just released by the International Energy Agency (IEA), electricity is taking on an increasingly central role around the world, opening up new opportunities for investors.

The report prepared at the request of Türkiye, the COP31 President, and Australia, the COP31 President of Negotiations examines the potential to accelerate electrification globally and the extent to which progress could be sped up by sector and region. It assesses the implications of faster electrification for energy security and climate goals, as well as the broader benefits and trade-offs.

The report will serve as the basis for discussions at the latest IEA-COP31 High-Level Energy Transition Dialogue taking place in New York in the context of the United Nations General Assembly (UNGA) as countries consider the adoption of a global electrification target of 35 per cent.

Based on technologies available today and energy prices at the levels seen before the onset of the current supply shock, the report finds that electricity could cost-effectively meet 33 per cent of the world’s final energy consumption by 2035, up from 23 per cent today. This would put the 35 per cent goal that is under discussion within striking distance, according to the report. Energy prices at their current levels, amid the Strait of Hormuz crisis, would make even more of the world’s energy consumption cost effective to electrify.

Electricity already plays a central and expanding role in modern economies. In recent years, global electricity use has grown faster than economic output and nearly twice as fast as overall energy demand, driven by rapid growth of air conditioning, data centres, advanced manufacturing and electric cars. 

As the world enters the Age of Electricity, this shift can bring major benefits for economic competitiveness, energy security and energy transitions – although ensuring electricity remains secure and affordable will become increasingly important as its use expands.

In a scenario in which fuel-importing countries around the world speed up the electrification of their economies considerably, their energy import bills could fall by more than $400 billion by 2035 compared with 2025 levels. By then, faster electrification could mean the world is using 18 million fewer barrels of oil per day than it would have done otherwise, mainly the result of a rapid uptake of electric vehicles in this scenario.

Electrification also offers a major opportunity to tackle emissions associated with energy use in transport, buildings and industry, which together account for more than half of all energy-related carbon dioxide (CO2) emissions. 

In the faster electrification scenario, CO2emissions from those three main sectors fall by 40 per cent by 2035, a rate of decline which is aligned with international climate goals. This decline would be sufficient to put total energy-related CO2 emissions on a downward trajectory, regardless of the electricity generation mix. 

A rapid expansion of domestically based, low-emissions power supply would further amplify the energy security and emissions benefits. 

Electrification supports the international goals of doubling the rate of energy efficiency improvements and tripling the total capacity of renewables.

Amid this year’s Strait of Hormuz crisis, the second major energy shock in the past five years, momentum behind key electric technologies is growing. Many countries are considering how they can further leverage electrification to reduce their dependence on imported fuels while lowering emissions. 

The new analysis finds substantial potential in all regions to increase electrification rates above today’s levels cost-effectively, although the opportunities and priorities vary by country. 

In many emerging and developing economies, for example, opportunities include electrifying agricultural water pumps, expanding the use of electric two- and three-wheelers in densely populated cities, and enabling small businesses in sectors such as food and textiles to make greater use of electricity.

However, realising this potential will require wider action to accelerate electrification in line with what is economically competitive. 

Avoiding bottlenecks – and ensuring electrification supports affordable and secure energy systems – will require scaling up investment in generation and grids, alongside the implementation of smarter and more flexible power systems. 

Evolving threats to electricity security will also need to be addressed. These include concentrated supply chains for key technologies and critical minerals; cybersecurity risks; and natural disasters and climate hazards.

The report also underlines that to ensure the benefits of electrification are widely shared, policymakers will need to help some households and businesses manage upfront costs.