22 Energy Outlook

By on Feb 4, 2022 in Energy

Global energy demand surpassed pre-COVID 19 levels in 2021. Energy was the top-performing S&P 500 sector that year. With energy demand still on the rise, the energy sector stands to grow even more in 2022.

The Balance Sheet sampled expert predictions of what’s ahead for renewables and the rest of the energy industry in 2022. We will keep tabs on key developments throughout the year.

Economist Intelligence, a policy analysis and consulting group, predicts that global energy consumption will rise by 2.2% in 2022 as economies recover from the pandemic. All types of energy except nuclear power will benefit, although “energy companies will need to undertake an urgent review of their strategies next year, as governments and investors ramp up pressure to cut emissions.”

Kathryn Downey Miller, president of energy industry analysis firm BTU Analytics, echoes that assessment. “Despite a strong profit outlook heading into 2022, enormous pressure is coming from providers of capital and other stakeholders to evolve business models for the new energy economy,” she said in an editorial published in December.

That pressure is a principal reason that “renewable energy growth is poised to accelerate in 2022, as concern for climate change and support for environmental, sustainability, and governance considerations grow and demand for cleaner energy sources from most market segments (residential, commercial, and industrial consumers) accelerates,” according to an energy industry outlook report prepared by Deloitte.

Renewable generation expands

Renewables were the only energy source for which demand increased in 2020, according to the International Energy Agency. Renewable electricity generation in 2021 expanded by over 8% in 2021. Record levels of wind and solar generation additions are expected to come online in 2022, according to S&P Global Market Intelligence, which studies energy markets.

The adoption of renewable energy sources will be further boosted by rapid technology improvements and decreasing costs. For example, the cost of installing solar photovoltaic systems has declined by 85% over the past decade.

The development of transmission lines that connect far-flung renewable energy capacity to electricity consuming centers will be a driver of the renewable energy industry in 2022. In July 2021, the Federal Energy Regulatory Commission began the rulemaking process to improve transmission planning, cost allocation and interconnection processes for renewable energy projects.

“It’s going to be a record year for renewable energy development in the U.S. in 2022,” said Richard Sansom, head of commodities research at S&P Global Market Intelligence. 

Fossil fuels sustain relevance

For all the focus on renewables, fossil fuels aren’t dead. Far from it, according to several analysts.

Oil, gas and coal production in the U.S. is increasing. The U.S. Energy Information Administration says the rise is expected to last at least another year due in part to high energy prices and extreme temperatures.

Unusually cold weather across the U.S. in February 2021 necessitated more home heating. The resulting draining of natural gas reserves and price increases spurred increased production to prepare for this winter.

“Despite the increased rhetoric and focus on energy transition, demand for all fossil fuels will increase in 2022, requiring more fossil fuel supply. Even though some companies and investors are looking to divest from fossil fuels, we see healthy levels of investment in 2022 and beyond, prompting an easing of energy prices,” S&P Global Platts, a London-based provider of information, analysis and benchmark prices for the commodities and energy markets, reported in December.

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