Energy Security Imperatives to Hasten Shift Away From Fossil Fuels, IEA Says
Deepening geopolitical instability will accelerate the pace of alternative energy development, including solar, wind and biofuels, as governments seek to shield their economies from volatile fossil fuel import dependency, the International Energy Agency said in a report Friday.
Renewables are forecast to generate almost 45% of global electricity in 2031, up from 33% in 2025, according to the IEA’s latest forecast, with installations surging by nearly 4,800 GW in that span.
In transport, renewable energy use will rise by more than 60% by 2031 to cover 6% of the sector’s energy demand. Renewable electricity used by electric vehicles will account for about 45% of this increase, while biofuels will make the second largest contribution at 35%, the IEA said, citing hikes in blending mandates by several countries, notably in Southeast Asia and Latin America.
While previous clean energy projects were largely driven by climate imperatives, alternatives to fossil fuels are now viewed as essential economic shields against supply disruptions, IEA Executive Director Fatih Birol said in a statement accompanying the findings.
“Previously, environmental concerns were the policy priority behind the growth of renewables, whose falling costs have made them a competitive option in many markets — but today, it’s mainly energy security that is driving renewables’ expansion as more and more countries seek to reduce their exposure to imported fuels,” Birol said. “Today, they account for a third of global electricity generation; in the next five years, they will be getting closer to half of it.”
Hormuz aftershocks
The IEA’s Renewables 2026 report comes against the backdrop of severe disruptions in the global fuel trade caused by wars in the Middle East and between Russia and Ukraine.
Shipping strikes and bottlenecks surrounding the Strait of Hormuz have stranded billions of barrels of crude and refined petroleum products, severely depleting commercial inventories and sending freight and fuel prices soaring.
Birol, as head of the OECD’s energy watchdog, has previously cautioned that dependence on oil has left the global economy vulnerable, with supply shocks in critical fuels such as diesel hitting agricultural inputs, squeezing supply chains and stoking inflation.
While the IEA and member states coordinated emergency oil reserve drawdowns to cushion market shocks, Birol has noted that the releases are temporary stopgaps that cannot replace long-term structural supply security.
By the IEA’s reckoning, governments are responding to the Hormuz crisis much like the world reacted to the oil shocks of the 1970s, by accelerating a shift from fossil fuels. Already, the IEA predicts that global oil demand will peak before the end of the decade.
As for the power sector, the Middle East conflict, hot summer temperatures and disruptions to the natural gas trade have pushed coal consumption to a record peak this year. But the IEA has characterized this as a temporary bump, with renewables led by solar and wind expected to permanently overtake coal-fired generation in 2027.
Investment priorities
The findings, which also come ahead of the COP31 U.N. climate change summit that begins next week in Turkey, are sure to be disputed by the fossil fuel industry and its advocates, who say that access to affordable energy in all forms should be the bedrock of global policy.
Oil executives and petroleum state ministers at an industry conference in Abu Dhabi this week sought to frame the energy security imperative as requiring more investment in drilling, refining and storage — not less.
“We need expanded strategic storage, larger stockpiles of products and flexible refining capacity closer to consumer markets,” Abu Dhabi National Oil Co. Chief Executive Officer Sultan Al-Jaber said in his opening address to the ADIPEC conference. “Infrastructure must be built before it is needed and enabled by advanced logistics.”
Saudi Aramco CEO Amin Nasser, meanwhile, said during his company’s earnings call on Tuesday that he expects global oil demand to rebound by 2.4 million b/d in 2027, and that he is in talks with several countries about adding more strategic stockpiles around the world.
“We don’t see any structural decline in demand, rather unmet demand due to supply constraints into the petrochemical and residential sectors,” he said. “Demand will come back stronger, not only to meet base demand growth, but also to build a cushion for energy security.”
Birol, who has long drawn the ire of the industry for his net zero advocacy, has said that continued capital expenditure into existing oil and gas fields remains necessary during the transition to manage natural reservoir declines, but he has also warned against expanding new drilling and investing in speculative long-cycle projects.
However, the IEA’s report also cautions that replacing fossil fuels with clean power introduces its own energy security challenges.
In the power sector, grid interconnections need to be modernized and battery storage systems expanded, alongside the deployment of energy management tools powered by artificial intelligence, to maximize renewables deployment.
For biofuels, where total demand is forecast to increase nearly 30% between 2025 and 2031, governments need to commit to full implementation of announced blending targets and mandates, with stronger support for production capacity, infrastructure and sustainable feedstock supplies, the IEA said.
“Governments do not have to choose between security, affordability and sustainability,” the IEA said in its report. “With well-designed policies, renewables can offer countries a way to diversify their energy mix, reduce exposure to imported fuels and high prices, lower overall electricity supply costs and cut emissions.”
–Reporting by Herman Wang, herman.wang@dowjones.com; Editing by Dean Visser, dean.visser@dowjones.com