Electricity prices and carbon emissions will keep rising unless more money is invested in renewables, the International Energy Agency has warned.
“Structural change” is needed to meet escalating global demand for power, said the IEA chief, Fatih Birol.
Demand jumped 6pc last year as economies re-opened from the pandemic, with China and India suffering power cuts due to a lack of coal for their power stations.
With global gas supplies also low, both gas and electricity prices have sharply risen across the UK and Europe, escalating a cost of living squeeze and pushing electricity suppliers out of business.
Global carbon emissions from power generation also rose because there was not enough renewable electricity to match demand.
Electricity demand is set to increase over the coming years as economies expand and try to move away from fossil fuels by turning to electric cars, heat pumps and hydrogen made through electrolysis.
Mr Birol said higher electricity prices were causing hardship for many households and businesses and risked becoming a driver of social and political tensions.
“Policy makers should be taking action now to soften the impacts on the most vulnerable and to address the underlying causes,” he said.
“Higher investment in low-carbon energy technologies including renewables, energy efficiency and nuclear power – alongside an expansion of robust and smart electricity grids – can help us get out of today’s difficulties.”
The IEA said average wholesale prices in Europe during the final three months of last year were more than four times higher than the average between 2015 and 2020. Japan and India also suffered sharp increases, although US prices were moderated by abundant shale gas reserves.
The IEA’s report comes in the same week that Mr Birol said Russia had contributed to the European gas price crisis by failing to send extra supplies through the spot market.
On Wednesday, Mr Birol claimed Russia could increase sales to Europe by more than 3bn cubic metres a month, which would “provide significant relief to European gas markets and would push the gas prices down”.
He stopped short of saying Russia was using gas supplies for political leverage, but said the low gas flows “coincide with heightened geopolitical tensions over Ukraine. I just wanted to highlight this coincidence”.
Russia has repeatedly denied using the high prices for political reasons, with Gazprom stressing it was meeting all its contractual obligations.
Russia’s President Putin claimed last month that Germany was reselling Russian gas to Poland and Ukraine rather than relieving an overheated market.
It comes as UK wholesale gas prices fell to 174p per therm, the lowest level since November, apart from December 31. Prices remain well above long-term averages of 50p, however.
Analysts at Wood Mackenzie warned gas storage levels in Europe could drop below 15bn cubic metres by the end of March to a record low that would add to pressure on prices.
Kateryna Filippenko, principal analyst for European gas research, said: “Cold weather in Europe could exacerbate the situation further, adding up to 10bn cubic metres to gas demand through the rest of the winter, pushing storage levels to zero unless more Russian gas is supplied, and Europe may have to tap into cushion gas to balance the market.”