The amount of electricity that is used globally is set to triple by 2050, according to the latest report from McKinsey & Company.
As the world moves to decarbonise, it is increasingly relying on electricity for just about everything from heat to transport. That’s leading to an uptick in the amount of electricity used, with McKinsey estimating that power consumption will increase 3-4% every year until 2050, with three times the amount of electricity used in 2050 compared to today.
Despite this move to electrification and decarbonisation in general, McKinsey’s Global Energy Perspective warns that fossil fuels are set to still play a major role for years to come. However, there are still some positive steps.
Oil is currently one of the most valuable resources in the world, as it’s used to power cities, cars and aeroplanes, amongst other things. However, demand for oil is set to peak this decade, perhaps as soon as 2025 according to the report. That’s not too surprising as electric cars continue to gain steam, while the use of oil in electricity generation plummets across the world.
The conflict in Ukraine is also a catalyst for country’s looking to reduce their reliance on oil, as well as natural gas, two resources that have helped Russia fund its conflict. While prices have increased in recent months due to the conflict, countries are looking to reduce their costs in the future by investing in more renewables or even nuclear power.
While countries have promised to secure their energy supply from foreign conflicts, leading up to COP26, a total of 64 countries, covering more than 89% of global emissions, also pledged or are legislated to achieve net zero in the coming decades. To keep up with these net zero ambitions, the global energy system may need to significantly accelerate its transformation.
McKinsey’s report projects a rapid shift in the global energy mix, with the share of renewables in global power generation expected to double in the next 15 years, while total fossil fuel demand is projected to peak before 2030, depending on the scenario. However, even with current government commitments and forecasted technology trends, global warming is projected to exceed 1.7°C by 2100, and reaching a 1.5°C pathway is increasingly challenging.
In fact, UN Secretary-General António Guterres noted that, “To avert climate catastrophe, the main emitters must drastically cut emissions starting this year.” That means countries will need to accelerate their decarbonisation efforts if they have any hope of achieving their goals.
Christer Tryggestad, a Senior Partner at McKinsey, commented, “In the past few years, we have certainly seen the energy transition pick up pace. Every year we’ve published this report, peak oil demand has moved closer. Under our middle scenario assumptions, oil demand could even peak in the next three to five years, primarily driven by electric-vehicle adoption.
“However, even if all countries with net zero commitments deliver on their aspirations, global warming is still expected to reach 1.7°C. To keep the 1.5°C pathway in sight, even more ambitious acceleration is needed.”
The report presents specific outlooks per fuel type such as natural gas, oil, coal, hydrogen and sustainable fuels, as well as a view on the role of CCUS in decarbonising the energy sector.
Key findings of this year’s report include:
- Going forward, the global energy mix is projected to shift towards low-carbon solutions, with a particularly strong role for power, hydrogen and synfuels:
- Renewables are projected to grow 3x by 2050, accounting for 50% of power generation globally already by 2030 and 80-90% by 2050
- Hydrogen demand is expected to grow 4-6x by 2050, driven primarily by road transport, maritime, and aviation
- Hydrogen and hydrogen-derived synfuels are expected to account for 10% of global final energy consumption by 2050
- Rapid technological developments and supply chain optimisation have collectively halved the cost of solar, while wind costs have also fallen by almost one-third. As a result, 61% of new renewable capacity installation is already priced lower than fossil fuel alternatives. Battery costs have also fallen by nearly half in the past four years
- Global oil demand is projected to peak in the next three to five years, primarily driven by EV uptake
- By 2050, CCUS could grow more than 100-fold from an almost non-existent footprint today, with investment opportunities exceeding LNG markets today
- Future growth in energy investments will almost entirely be driven by renewables and decarbonisation technologies
- Despite net zero commitments from governments and corporations, an 85% renewable power system by 2050, and the rapid update of EVs and decarbonisation technologies, global warming is projected to exceed 1.7 degrees