BOSTON—Renewables and other low-carbon solutions must ramp up from 12% of the energy supply in 2021 to 50%-70% by 2050, according to industry standard models, to limit global warming to 1.5°C above preindustrial levels. This is around three times faster than previous transitions, for example to coal and to hydrocarbons. These are among the findings of a new publication released today by Boston Consulting Group (BCG) Center for Energy Impact, titled The Energy Transition Blueprint.
Total world consumption of electricity is projected to roughly double by 2050. More than 775 million people globally still have no access to electricity. At the same time, societies need more than 20 MWh of primary energy per capita to reach very high levels of prosperity. To address these competing demands, society must massively accelerate substitution and abatement of fossil fuel use. Five technology levers can allow us to achieve our targets in the transition: increasing energy efficiency; electrifying end uses, via, for example, electric vehicles or heat pumps; decarbonizing the power supply; using lower carbon fuels in hard-to-abate use cases; and deploying carbon capture.
“Most of the tools we need to bring our energy system to net zero are already available,” said Maurice Berns, a BCG managing director and senior partner who chairs the Center for Energy Impact and coauthored the report. “What we need, urgently, are the policies, proven business cases, and capabilities to effect the biggest and most critical peacetime transformation in our economic history.”
A Significant Investment Gap
An investment of $37 trillion is needed by 2030 to finance the energy transition. Of this, $19 trillion at most is already committed, leaving an investment gap of $18 trillion. We need as much investment in the electric grid, as we do in new solar and wind capacity, to avoid generating low-carbon power that is stranded while the grid catches up. Oil and gas must be phased down rapidly, but selective investments will still be necessary to ensure security of energy supply for our societies. Most net zero scenarios call for oil and gas supply equivalent to 50%-80% of 2021 supply in 2030, and current productive assets will not meet 2030 demand and beyond. The focus should be on developing the most affordable, least greenhouse-gas-intensive oil and gas production.
A Tectonic Shift in the Energy System
The economics of our energy systems will fundamentally change as a result of the transition. Energy will shift from an extracted to a manufactured resource, requiring much heavier upfront investment but lower operating costs. A material increase in price volatility is expected, and energy storage remains a challenge as the energy mix changes from fossil fuels to electricity and hydrogen. Today, there is only capacity to store one to two hours of average electricity consumption in Europe and the US. Electricity market design will require a significant overhaul, to address cyclicality, increasing volatility, and uncertainty in energy markets. Energy transport costs will also increase significantly due to the energy mix change, which is likely to lead to global industry production centers re-locating to where energy is less costly.
“A significant acceleration of the green energy transition is essential to maintaining a livable planet for today and for future generations,” said Patrick Herhold, a BCG managing director and senior partner, and a coauthor of the report. “As for any transformation, the challenges and disruption it comes with should not be underestimated. However, it also offers tremendous opportunities; in the long-run, a largely green energy system can resolve today’s energy trilemma around energy sustainability, affordability, and security.”
Download the publication here.
The Center for Energy Impact (CEI) shines light on the energy transition, focusing on the actions required to achieve global transformation. CEI applies a holistic perspective to understanding and shaping bold responses to one of the most critical and complex challenges of our time.
Our deep expertise spans markets and economics, carbon and technology, capital and investors, the macrodynamics of geopolitics and resilience, and the microdynamics of politics and specific policies. We offer nuanced, constructive ideas and solutions covering the future availability, economics, and sustainability of the world’s energy sources—and the implications for energy companies, industries, investors, consumers, and governments. The CEI team is committed to facilitating informed, innovative discussions to make our world sustainable.
Boston Consulting Group partners with leaders in business and society to tackle their most important challenges and capture their greatest opportunities. BCG was the pioneer in business strategy when it was founded in 1963. Today, we work closely with clients to embrace a transformational approach aimed at benefiting all stakeholders—empowering organizations to grow, build sustainable competitive advantage, and drive positive societal impact.
Our diverse, global teams bring deep industry and functional expertise and a range of perspectives that question the status quo and spark change. BCG delivers solutions through leading-edge management consulting, technology and design, and corporate and digital ventures. We work in a uniquely collaborative model across the firm and throughout all levels of the client organization, fueled by the goal of helping our clients thrive and enabling them to make the world a better place.