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INTERNATIONAL ENERGY AGENCY The International Energy Agency (IEA), an autonomous agency, was established in November 1974. Its primary mandate was – and is – two-fold: to promote energy security amongst its member countries through collective response to physical disruptions in oil supply, and provide authoritative research and analysis on ways to ensure reliable, affordable and clean energy for its 28 member countries and beyond. The IEA carries out a comprehensive programme of energy co-operation among its member countries, each of which is obliged to hold oil stocks equivalent to 90 days of its net imports. The Agency’s aims include the following objectives: • Secure member countries’ access to reliable and ample supplies of all forms of energy; in particular, through maintaining effective emergency response capabilities in case of oil supply disruptions. • Promote sustainable energy policies that spur economic growth and environmental protection in a global context – particularly in terms of reducing greenhouse-gas emissions that contribute to climate change. • Improve transparency of international markets through collection and analysis of energy data. • Support global collaboration on energy technology to secure future energy supplies and mitigate their environmental impact, including through improved energy efficiency and development and deployment of low-carbon technologies. • Find solutions to global energy challenges through engagement and dialogue with non-member countries, industry, international organisations and other stakeholders. © OECD/IEA, 2014 International Energy Agency 9 rue de la Fédération 75739 Paris Cedex 15, France Please note that this publication is subject to specific restrictions that limit its use and distribution. The terms and conditions are available online at Australia Austria Belgium Canada Czech Republic Denmark Finland France Germany Greece Hungary Ireland Italy Japan Korea (Republic of) Luxembourg Netherlands New Zealand Norway Poland Portugal Slovak Republic Spain Sweden Switzerland Turkey United Kingdom United States The European Commission also participates in the work of the IEA. IEA member countries: Secure Sustainable Together

WELCOME UPFRONT HOW WE MUST BUILD THE ELECTRIC FUTURE Electricity is a driving force in the changing economic landscape. A “great electrification” is taking place as growth in emerging economies and changing technologies puts air conditioners, computers and much more at the disposal of billions. Such electronics offer access to a global economy and political space increasingly dominated or simply facilitated by information technology. In terms of mobility, electric vehicles ranging from luxury Teslas in California to ultracheap electric scooters in Kunming are becoming commonplace – whether for climate, pollution or economic reasons. As a result of all this, electricity demand is expected to grow more than demand for any other final form of energy. The principal scenario of the IEA World Energy Outlook sees world electricity demand increasing by more than two-thirds from 2011 to 2035. Most of this incremental demand will come from non-OECD countries as emerging economies develop further. While power demand and poverty alleviation can form a virtuous cycle, this shift carries a high price tag. The global power sector will need USD 17 trillion in investment to meet this rising demand as well as replace ageing infrastructure in OECD member countries. By Maria van der Hoeven Maria van der Hoeven is in her third year as Executive Director of the International Energy Agency, where she has worked to promote IEA effectiveness in global energy security. Before taking the helm of the Agency, she served as Minister of Economic Affairs for the Netherlands from February 2007 to October 2010, during which time she demonstrated leadership on energy policy at the national, regional and global levels. Tectonic shifts throughout the electricity system It is not only how much electricity is consumed and who is consuming it that is changing, but also how it is generated. Coal’s share will fall from 41% to 33% in 2035, but it will remain the largest generation source. With gas holding at 22%, fossil fuels will still account for more than half of all generation – bad news for a low-carbon transition. Renewable energy will increase to 31% from 20%, but integrating high levels of variable sources such as wind and solar will be difficult in some markets. The greatest potential for renewable power will be in precisely those growing markets where demand is highest and integration of renewables most cost-competitive: the shift to cleaner power generation may owe more to economics than climate policy. Against this dynamic backdrop, policy makers face new challenges in assuring reliable, affordable electricity supplies for their populations and their economies. At the IEA, we have taken a lead in recognising the potential risks and assessing potential responses. In 2011, energy ministers tasked the Agency with developing an Electricity Security Action Plan. This work is continuing but has already led to critical reports showing the best ways forward for aspects of the system ranging from the grid to regulation. One of our most recent books, The Power of Transformation: Wind, Sun and the Economics of Flexible Power Systems, is a critical analysis of how variable renewable energy can be effectively and economically integrated into both new and existing power systems. And the 2014 edition of our flagship technology report, Energy Technology Perspectives, focuses on electricity, gauging how greater electrification can unlock opportunities to enhance the energy system’s efficiency, security and reliability, reduce the cost of required infrastructure and further decarbonise overall energy supply. The need for a systematic approach to the transformation One thing our research and analysis make clear is that a more electrified future requires a change of perspective. As we enter the energy era where fossil fuels increasingly take a backseat to other sources of electricity, we must rethink how we incorporate new and developing elements. From renewables generation to transport based on electric motors, we have to drop the classical approach of adding new technology to an existing system. To achieve a cost-effective improvement in energy security and decarbonisation, we must instead first consider all available options and then transform the system as a whole. And the IEA works to determine and reveal just how to do that. With the analysis and recommendations you will find in the pages ahead, plus links to the full reports, we offer readers of IEA Energy and the rest of the world a preview not just of the benefits of a more electrified world but also the best way to build it. 3