Why is Electrification the Next Big Move in Energy?

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About a century ago, we began switching from fire to electricity as our main source of energy. Now, electric outlets, lights, wires and poles abound. So, job done, right? Far from it. In some ways, electrification has just begun.

electrification

By gopixa/Shutterstock.com

In fact, electrification presents itself as the next big move in energy as we strive to decarbonize the world and drive down energy costs.

Why is that? And what exactly is electrification?

The term refers to switching from use of fossil fuels to electricity for energy. This translates into using electricity instead of combustion engines and boilers in homes, buildings, vehicles and manufacturing. In advanced economies like North America, it means replacing fossil-driven systems and appliances with those that use electricity. In rural Africa and India, it means bringing communities electricity for the first time to avoid the burning of waste, wood or coal in stoves or pits.

Environmental concerns drive electrification, especially “beneficial electrification” — power derived from clean and renewable sources. But we’re not electrifying solely for the planet’s health. Our Internet-based world thrives on electricity-hungry devices. Cell phones, alone, require 10 times more electricity than landlines. We simply need more power.

Electrification as an industry

This demand for power opens up opportunities for business, consumers and society at large.

For the power industry, electrification creates a chance to innovate and grow. Investments that once flowed to the fossil fuel sector instead will flow to the power industry. It’s a big new market. Bloomberg New Energy Finance (BloombergNEF) sees electrification driving $13.3 trillion in new investment as demand for electricity grows 62% through 2050. To put that in perspective, that’s an amount just under the gross domestic product of China, $14.4 trillion GDP for 2019.

For electric utilities, in particular, this movement revives what’s been an otherwise relatively stagnant industry in the developed world in recent years. Fully electrifying transportation, business and homes would double electricity use in the U.S. by 2050, while reducing greenhouse gases by 70%. The Boston Consulting Group estimates that the rise of electric vehicles, alone, could create $3 billion to $10 billion of new value for the average utility. 

For consumers, electrification may present a chance to reduce energy costs while also tapping into a more sustainable resource. Electric vehicles, for example, significantly reduce fuel costs, according to the U.S. Department of Energy. On a national average, fuel costs for a conventional car are more than double that of an electric vehicle. This is important because nearly one-fifth of total household expenditures go to transportation. 

And electricity is not only less expensive than oil, but it’s also less apt to see volatile shifts in pricing, lending itself to a more stable economy. This is significant given the relationship between recessions and oil price spikes in post-World War II America.  

Green power to the powerless

Rural communities, particularly in undeveloped countries, benefit from electrification in a different way. Roughly 800 million people, most of them in remote villages in Africa or India, have yet to gain access to electricity. Economic development is difficult, given that villagers must sometimes walk miles to access water or charge cell phones and lack nighttime lighting for safety, study and work. 

Last, it’s important to note, the electrification movement is closely tied with efforts to green and decentralize electric supply with renewable energy and energy efficiency. This is because electrification will only achieve its full environmental value — whether in advanced economies or rural outposts — if it is produced from low- or no-carbon resources. Currently, this is the case for about one-third of electricity worldwide that comes from noncombustible sources, largely renewable energy and nuclear. 

Where are the opportunities for electrification? We’ll talk about them in the next four installments of this feature series, Electrification: The Next Big Move in Energy. 

  1. Electrifying Transportation 
  2. Electrifying Infrastructure, Buildings and Manufacturing
  3. Rural Electrification
  4. Greening Electric Supply
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About Elisa Wood

Elisa Wood is the chief editor of MicrogridKnowledge.com. She has been writing about energy for more than three decades for top industry publications. Her work also has been picked up by CNN, the New York Times, Reuters, the Wall Street Journal Online and the Washington Post.