Tackling energy transition technology bottlenecks with substitute materials, innovation, infrastructure build out and regulation will be crucial to achieving net zero targets, according to analysis from McKinsey & Company.
Its 2023 Global Energy Perspective 2023 found bottlenecks related to land availability, energy infrastructure, manufacturing capacity and labour, consumer affordability, investment willingness, materials availability.
These and others could slow the energy transition at a time when the rollout of clean energy technologies needs to happen at five times the current rate to achieve net zero commitments, according to the analysis.
The technologies with the fastest expected growth are the ones most vulnerable to bottlenecks, in particular wind and solar, electric vehicles, green hydrogen, and heat pumps.
Of these, wind power, electric vehicles and green hydrogen are expected to be most critically affected with potential undersupplies of 20 to 50% for electrolyzers, with this figure rising to over 50% for some materials used in wind power magnets, and a projected surge of 330% in lithium demand for batteries by 2030.
However, when bottlenecks are overcome, clean energy could account for up to 85% of global power generation by 2050 in an Achieved Commitments scenario.
The report models the outlook for demand and supply of energy commodities across a 1.5°C pathway, and four bottom-up energy transition scenarios.
These energy transition scenarios examine outcomes ranging from warming of 1.6°C to 2.9°C by 2100.
These wide-ranging scenarios are shaped by more than 400 drivers across sectors, technologies, policies, costs, and fuels, serving as a fact base to inform decision makers on the challenges to be overcome.
Bram Smeets, partner at McKinsey, said: “The analysis of these bottom-up scenarios shows that the world requires a major course correction to reach the goals aligned with the Paris Agreement.
“While we see a strong increase in low-carbon technologies such as solar, wind and electric heat pumps, urgent global momentum and collaboration across the energy value chain is needed to resolve bottlenecks and fulfil critical prerequisites for accelerated decarbonization.”
Furthermore, global energy consumption will be shaped by speed of industry electrification, the analysis found.
By 2050 global energy consumption could decline by as much as 6% versus 2022 in an Achieved Commitments scenario as electrification of different sectors results in lower energy consumption.
In a Fading Momentum scenario, energy consumption would grow by 24% in the same period if electrification slows down.
Electricity and hydrogen are the fastest growing energy carriers within the energy matrix, increasing from between 21% of the energy demand in 2022 to 58% in the Achieved Commitments scenario and 33% in the Fading Momentum in 2050, while fossil fuels, which represented 64% of the energy demand in 2022, would fall to 28% and 54% in the respective scenarios.
Hydrogen demand is projected to increase two to five times by 2050 across scenarios, as growth comes from both traditional hydrogen consuming industries like chemicals and refining; in faster transition scenarios, strong growth is projected also in completely new industries like heavy duty trucking, industrial heat or iron and steel.
Luciano Di Fiori, Partner at McKinsey, said: “While the energy transition has gathered pace, it will be further enabled by continued growth in investment into green technologies and electric transmission and distribution.
“Investment in a broad and balanced portfolio of low-carbon solutions is one of the most critical levers for debottlenecking the transition.”
McKinsey’s analysis shows that total annual investments in the energy sector overall are projected to grow by 2-4% per annum-roughly in line with global GDP growth-to reach between US$2 trillion and US$3.2 trillion in 2040.
Decarbonization technologies demonstrate the highest levels of investment growth at 6-11% per annum, driven predominantly by the strong uptake of EV charging infrastructure and Carbon Capture Use and Storage (CCUS).
The analysis shows that investment in a broad energy mix, including oil and gas, will continue for a period in order to shore-up security of supply and meet demand across the range of scenarios.
Ole Rolser, partner at McKinsey, said: “History has shown us that new technologies develop much faster than anticipated with the right catalysts and incentives.
“To deliver on the steep climate commitments globally, substantial pivots are needed across industries and geographies. With positive price signals and a buoyant innovation landscape, the ingredients exist to enable the course correction towards a 1.5°C pathway and overcome bottlenecks.”