Federal and household spending on energy in the U.S. and Canada will drop sharply as the two countries reduce their reliance on fossil fuels, according to DNV’s Energy Transition Outlook North America.The new report explores the potential energy future of the U.S and Canada to the middle of the century, and it forecasts 12 trillion dollars will be spent in the two countries on grid and renewables between now and 2050. The efficiency of renewables and electrification means that overall expenditure on energy will be the equivalent of 2.5% of GDP by 2050, compared to 4% now.
Electrification will be a key driver of the energy transition, which will ultimately benefit consumers, the report said. Household energy bills are set to halve by 2050 as they reap the rewards of cheaper electricity generated by renewables.
Transmission Upgrades
To support the influx of renewable energy resources, the grid must undergo a vast expansion, increasing its capacity 2.5 times by 2050, the report says. The Outlook takes into consideration the current bottleneck in transmission lines, which, if not addressed, will limit the attractiveness of wind and solar installations. Policies have already been initiated in the U.S. and Canada to address the lack of grid capacity, although ultimately DNV believes that transmission- and distribution-system operators will be driven by the opportunity to capitalize on the vast market for renewable power.
Inflation Reduction Act (IRA)
The IRA is providing stability for the renewables industry, which previously suffered from boom-and-bust cycles linked to the changing regulatory and fiscal landscape. Boosted by IRA, solar and wind power will likely grow 15- and 8-fold, respectively by 2050, the report says. Investments in hydrogen, carbon capture and storage (CCS) and direct air capture (DAC) are all front-loaded in the 2030s due to the fiscal incentives, which otherwise would have matured much more slowly. Notably, IRA has changed DNV’s forecast of hydrogen share of the energy mix in North America from 5 percent to 9 percent by 2050, with green hydrogen from dedicated renewables overtaking blue hydrogen by the mid-2030s.
Currently, fossil fuels account for around 80% of the energy supply in the U.S. and Canada, but this will drop to less than 50% by 2050. Coal production in the region will drop 85% by midcentury as it struggles to compete with cheaper forms of electricity production such as wind and solar as well as natural gas, the report says.
Electrification
The shift to electric vehicles will be the main reason for a reduction in domestic oil demand, with consumption forecast to decline by 75% by midcentury. Oil exports, though, will triple. Natural gas demand is approaching its peak and consumption will almost halve by 2050 as power generation becomes dominated by renewables, but also here export remains stable.
Electrification will double by 2050 and account for 41% of the region’s overall energy demand driven by the emergence of new demand categories such as electrified road transport, electrolysis for hydrogen production, and the use of heat pumps in buildings and manufacturing. Solar will become the largest producer of electricity by the mid-2030s, supported by favorable economics and enhanced policy support in the region. By 2050, solar will account for almost half of all electricity generated in North America. Although currently stymied by inflationary and supply chain pressures, continued policy support for wind will ensure wind accounts for 35% of the region’s electricity supply by midcentury.
Road to Net-Zero
Although the policies enacted in North America are accelerating the energy transition, the U.S. and Canada will not reach net zero CO2 emissions by 2050, the report said. CO2 emissions are forecast to drop 75% by 2050 as fossil fuels, especially natural gas, will still play a role in the energy mix and the emissions of hard to electrify industrial processes like cement production will remain significant. According to DNV’s Pathway to Net Zero scenario, for the world to meet the goals of the Paris Agreement North America would have to be net zero by early 2040s which will require, among other things, even more rapid scale-up for CCS and almost 6 times as much DAC as is currently forecast.
