The global energy landscape is undergoing a profound transformation driven by the urgent need to address the climate crisis and reduce greenhouse gas emissions. The detrimental effects of extreme weather events disproportionately impact developing countries grappling with inadequate financial support from wealthier nations. However, amidst these challenges, technological advancements are making non-fossil fuels increasingly affordable and economically viable. Renewable energy sources have emerged as a critical component of the energy mix in many countries, surpassing the share of fossil fuels in electricity generation. Energy transition, characterized by a shift in the global energy mix, is propelled by factors such as national priorities, technological advancements, growing energy demands, and a growing public awareness of climate change.
The energy transition is a complex process influenced by various factors. Throughout history, energy transitions have been driven by technological advancements, national priorities, and changes in the global geopolitical landscape. For example, adopting diesel-powered engines in the early 1900s enabled rapid globalization due to their smaller size and increased efficiency compared to coal-powered steam engines. These transitions often involve the addition of new energy sources rather than a complete replacement of existing ones. However, the current energy transition is distinct as it emphasizes the urgent need to reduce greenhouse gas emissions and mitigate the impacts of climate change.
Renewable energy sources, such as solar, wind, hydro, and geothermal power, are proving to be the way to combat climate change. They offer a clean, abundant, and sustainable alternative to traditional fossil fuels, which are the leading cause of atmospheric emissions and global warming. According to research by Next Move Strategy Consulting, the market for renewable energy is growing, and it already generated a revenue of USD 971 billion in 2022. The market is expected to grow at 9.2% CAGR, and the revenue will hit over USD 2,000 billion by 2030.
Today, when we think about energy mixes, we envision a diverse range of sources powering our world. From coal, oil, and gas to nuclear, hydropower, solar, wind, and biofuels, our energy mix has evolved significantly over the centuries. Looking back a couple of centuries ago, our energy mixes were relatively homogeneous, and the transition from one source to another was incredibly slow.
Traditionally, biomass, including wood, crop waste, and charcoal, was the dominant energy source worldwide until the mid-19th century. However, with the advent of the Industrial Revolution, coal emerged as the primary energy source, followed by the rise of oil, gas, and hydropower by the turn of the 20th century. It wasn't until the 1960s that nuclear energy joined the mix, and what we now consider "modern renewables," such as solar and wind, were only added much later, in the 1980s.
Vaclav Smil and other researchers studying long-term energy transitions across countries emphasize the historically slow rate at which energy transitions occur. The speed and scale of the energy transition we require today, shifting from fossil fuels to low-carbon energy, present a new challenge, vastly different from the past.
To understand our current energy mix, let us examine the sources we rely on today. Globally, the largest share of our energy comes from oil, coal, gas, and hydroelectric power. However, as we delve deeper into the details, we realize that the global energy mix relies heavily on fossil fuels. Estimates suggest that fossil fuels, including oil, gas, and coal, accounted for approximately 81% of total energy consumption in 2022.
According to McKinsey, global energy consumption is projected to flatten in the coming decades. Despite the rapid growth of the global economy and a population increase of two billion people, energy consumption is expected to grow by only 14%. This trend is driven by continuous reductions in the energy intensity of GDP, facilitated by greater end-use efficiency in buildings, transport, and industry.
One crucial factor in achieving this efficiency and driving the transition is electrification. Shifting to electrical solutions often significantly improves efficiency in various segments, such as space heating and passenger cars. The role of electricity in the final consumption mix is projected to grow from approximately 20% today to 40% by 2050. This doubling of electricity consumption, combined with hydrogen uptake, is expected to offset fossil fuel consumption, leading to an estimated 40% reduction in 2050 compared to 2020.
McKinsey's assertions align with the International Energy Agency (IEA) findings. In their Energy Outlook Report, the IEA highlights the rising share of electricity in global final energy consumption. By 2030, the percentage of electricity is projected to increase to 22% in the Sustainable Development Scenario (STEPS) and 24% in the Accelerated Sustainable Development Scenario (APS). In the Net Zero Emissions (NZE) Scenario, the share will rise to 28% by 2030 and 52% by 2050. This substantial increase in global electricity demand over the coming decades signifies the critical role of clean electricity and electrification in achieving a net-zero emissions system.
Most of this growth is expected to occur in emerging markets and developing economies, where electricity meets a wide range of residential, commercial, and industrial needs. The growing populations, higher incomes, and rising temperatures rapidly increase the demand for space cooling. In the STEPS, the demand for space cooling alone is equivalent to adding another European Union to the current global electricity demand by 2050.
BNEF expects clean power capacity additions to increase by at least 18% in 2023. Clean energy is more cost-competitive than ever as fossil fuel costs remain elevated, and renewable costs are now resuming their long-term decline,
Clean energy, including low-emissions electricity and fuels, is the key to the future energy mix. Solar PV and wind power deployments are accelerating, reaching 45-60% of the electricity mix by 2050. Power system flexibility becomes crucial with the rise of solar and wind. Low-emissions sources account for approximately 40% of electricity generation, with renewables comprising 30% and nuclear making up 10%. The deployment of solar photovoltaic (PV) and wind power is accelerating in all scenarios, achieving new yearly records until 2030. By the mid-century, the combined share of solar PV and wind power in the electricity mix is projected to reach 45% in the STEPS scenario and 60% in the APS scenario from the IEA. The deployment balance varies by region and country, with solar PV becoming the leading technology in the United States and India. At the same time, the European Union focuses on onshore and offshore wind.
In the European Union, wind power is expected to account for over 40% of total generation by 2050 in the STEPS scenario and over 50% in the APS scenario. The increased share of solar PV and wind in the energy mix reshapes the power system and creates a greater demand for power system flexibility to ensure electricity security. This emphasizes the importance of dispatchable low-emissions technologies such as hydropower, bioenergy, and geothermal. Additionally, new approaches, including co-firing ammonia in coal plants and low-emissions hydrogen in natural gas plants, as well as retrofits of existing power plants with carbon capture, utilization, and storage (CCUS), are being encouraged. Regions with a higher share of solar PV relative to wind tend to deploy more battery storage, while regions where wind dominates, rely on a broader range of flexibility sources.
Wind energy has emerged as a significant player in the global renewable energy landscape, offering numerous benefits and remarkable growth potential. Small wind turbines, capable of producing 100 kilowatts of power, have become popular for residential use, providing enough energy to power a home. These compact turbines also find application in various settings, including water pumping stations.
As we move to larger wind turbines, we witness a substantial increase in power generation capacity. Situated on towering structures as tall as 80 meters, these turbines feature rotor blades extending approximately 40 meters, enabling them to generate 1.8 megawatts of power. These turbines have proven effective in commercial and industrial applications.
At the pinnacle of wind turbine technology, towering structures reaching 240 meters house even larger turbines. With rotor blades stretching over 162 meters, these impressive machines can generate a substantial 4.8 to 9.5 megawatts of power. Their contribution to electricity generation is significant.
Once the wind turbines generate electricity, they can serve multiple purposes. It can be immediately used, connected to the electrical grid for broader distribution, or stored for future use, ensuring a consistent and reliable power supply.
The growth of wind power has been rapid since the turn of the millennium, driven by research and development, supportive policies, and declining costs. According to data from the International Renewable Energy Agency (IRENA), global installed wind generation capacity, both onshore and offshore, has increased astonishingly from 7.5 GW in 1997 to approximately 733 GW by 2018.
In line with this growth, the amount of electricity generated by wind has experienced substantial expansion. In 2021 alone, wind power generation increased by more than 260 TWh, representing a 17% rise compared to the previous year. This growth was 55% higher than in 2020, making it the most significant increase among all power generation technologies. Wind power remains the leading non-hydro renewable technology, contributing 1,849 TWh of electricity generation in 2021, almost as much as the combined output of all other renewable sources.
The upward trajectory of wind power continued in 2022, with electricity generated by wind reaching an impressive 2,145 TWh, a 16% increase from 2021. China leads the world in wind energy production, accounting for over 800 TWh, closely followed by the United States with 434 TWh.
An analysis conducted by Ember, the independent climate think tank, highlighted that in 2022, 12% of the world's power came from solar and wind, up from 10% in 2021. This underscores the increasing significance of renewable energy sources in the global power sector.
To align with the ambitious Net Zero Scenario, which aims for wind power generation of approximately 7,900 TWh by 2030, an average expansion rate of around 18% per year between 2022 and 2030 is required. After the exceptional capacity additions observed in 2020 and 2021, the deployment of wind power is expected to stabilize in the coming years. However, strong efforts are necessary to ensure adherence to the trajectory outlined by the Net Zero Scenario, emphasizing the importance of sustained commitment to renewable energy growth and transition. Wind energy's role in achieving a sustainable and carbon-neutral future is paramount.
The era of rapid growth in natural gas appears to be ending. An analysis from EUI mentions that global natural gas consumption will remain flat in 2023 as it continues to decline in Europe (-1.7%) and remains flat in North America, offsetting gains in the rest of the world. Gas consumption in Europe (excluding Russia) is not expected (excluding Russia) to return to pre-war levels, at least within the next decade. However, gas demand in Asia will rise by 2.4% in 2023, with the region on track to become the largest global market for natural gas (surpassing North America) by 2027.
According to IEA, there will be a 5% increase in demand for natural gas before 2030. The demand will remain flat after 2030 at around 4,400 billion cubic meters (bcm) until 2050. Factors such as higher near-term prices, faster electrification of heat demand, increased adoption of other flexibility options in the power sector, and extended reliance on coal, in some cases, dampen the outlook for natural gas.
In the near term, coal demand increases as the energy crisis leads to some switching away from natural gas because of concerns about high prices and availability, IEA Predicts. Coal consumption will benefit from increased policy focus on energy security, growing for the third consecutive year in 2023, although only marginally. However, This demand increase is relatively short‐lived: in the STEPS, coal demand will be lower in 2030 than today. The current crisis pushes up utilization rates for existing coal‐fired assets but does not bring higher investment in new ones. This amount of additional capacity, however, does prolong the period until global coal‐fired capacity peaks (2025 in the STEPS).
Hydrogen has emerged as an important part of the clean energy mix needed to ensure a sustainable future. Falling costs for hydrogen produced with renewable energy and the urgency of cutting greenhouse-gas emissions have given a clean hydrogen unprecedented political and business momentum.
Hydrogen demand grew in new applications, although from a very low base, reflecting accelerated deployment of fuel cell EVs, particularly in heavy-duty trucks in China. Some key new applications for hydrogen are showing signals of progress, particularly in the steel sector where announcements for new projects are growing fast just one year after the start-up of the first large pilot project for the use of pure electrolytic hydrogen in direct reduction of iron.
Today, most hydrogen is sourced from fossil fuels, also known as grey hydrogen, which undermines its potential as a clean energy source. Different types of hydrogen technologies are typically labeled as 'grey', 'blue', or 'green', depending on how they are produced. Although hydrogen itself only emits water when burned, the production process can generate significant carbon emissions. To truly realize the benefits of hydrogen, the world must transition towards green hydrogen, produced using renewable energy sources such as water, wind, and solar.
Hydrogen supply is projected to shift from nearly 100% grey hydrogen to 60% clean production by 2035, as costs decline and policymakers support hydrogen technology adoption, McKinsey predicts.
The global green hydrogen market was valued at USD 676 million in 2022 and is projected to reach USD 4.4 billion by 2026, based on estimates from the research firm MarketsandMarkets. The mobility sector is the largest adopter of green hydrogen, accounting for 58% of the total market in 2022, followed by the power sector. Both sectors are growing at a 63% CAGR. Other sectors contributing to the green hydrogen market include grid injection, chemical, and industrial, according to the MarketsandMarkets classification.
Demand for hydrogen was around 94 million tons in 2021, most of it in grey hydrogen. But by 2050, demand for clean hydrogen, which includes green and blue hydrogen (sourced from fossil fuel but using a technology called carbon capture, utilization, and storage (CCUS) that would significantly reduce carbon emissions), could surge to 500-600 metric tons by 2050 as estimated by two major consulting firms, BCG and McKinsey. To meet that demand, an investment of USD 700 billion is required to produce, distribute, store, transport, and for other costs related to the end-use application of green hydrogen, according to McKinsey estimates.
Electrolysis is another promising future technology for future hydrogen production. It is the fastest-growing segment in the global hydrogen generation market, a market worth USD 154 billion in 2022. It is predicted to hit USD 219 billion by 2026, according to MarketsandMarkets. Electrolyzers use the electrolysis process to split water into hydrogen and oxygen using electricity, which gives out zero carbon emissions. Although CCUS is still the most popular low-carbon hydrogen generating method (because it requires lower operating costs relative to other low-carbon technologies like electrolysis), this should change in the future when green hydrogen price starts to get competitive, most likely after 2030. Around two-thirds of low-carbon hydrogen production in 2030 will be based on electrolysis, while the remaining one-third is hydrogen produced from fossil fuels with CCUS.
Hydrogen market growth to 2035 is driven by sectors with favorable economics versus alternatives, such as road transport, where fuel cell electric vehicles (FCEVs) will likely displace conventional diesel trucks.
Sources: Statzon, McKinsey, IEA (1), IEA (2), EIU, IRENA, IRENA (2), BCG, Our World in Data, National Geographic, CNBC.