The hard stuff: Navigating the physical realities of the energy transition

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The hard stuff: Navigating the physical realities of the energy transition

By Mekala Krishnan et al., | McKinsey & Company | August 14, 2024

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Today’s energy system, encompassing both the production and consumption of energy resources, is massive and complex.  The system has been optimized over centuries, is deeply embedded in the global economy, and serves billions of people, if not yet all of humanity.   And it is high-performing. Energy can be dispatched relatively easily where and when it is needed because current fuels are energy-dense and easily transportable. Supply can be ramped up and down quickly.

For all its advantages, today’s system also has critical flaws. About two-thirds of energy is currently wasted.   And the system generates more than 85 percent of global emissions of carbon dioxide (CO2).

Companies and countries are now engaged in an effort to transition the energy system and reduce those emissions—and to do so in just a few decades. That is a big ask. In the digital age, we have become accustomed to lightning-fast transformations. TikTok took nine months and ChatGPT only two months to gain 100 million users.   But an energy system is a physical entity, and historical energy transitions have taken many decades or even centuries. Complicating the task of building a new low-emissions energy system is that it coincides with the need for it to continue to grow to expand access to energy for billions of people who still do not have it, thereby economically empowering them.

Real progress has been made, but the transition remains in its early stages. Thus far, deployment of low-emissions technologies is only at about 10 percent of the levels required by 2050 in most areas, and that has been in comparatively easy use cases. More demanding challenges are bound to emerge as the world confronts more difficult use cases across geographies.

Low-emissions technologies such as solar and wind power and electric vehicles (EVs) have advantageous properties and can be brought together to deliver high performance. But deploying them well and progressing the transition further requires understanding the physical realities of the energy transition—the “hard stuff.” Recognizing that the energy transition is first and foremost a physical transformation is a truth that can get lost in the abstraction of net-zero scenarios. But it is vital if the new energy system is to retain, or even improve on, the performance of the current one and secure an affordable, reliable, competitive path to net zero. 

The energy transition involves the physical transformation of seven deeply interlinked domains. The first is the power domain, which needs to reduce its own emissions and to scale dramatically to provide low-emissions energy to the three large consuming domains: mobility, industry, and buildings. The final three domains are enablers of the energy transition: raw materials, especially critical minerals; new fuels, such as hydrogen and other energy carriers; and carbon and energy reduction

Twenty-five interlinked physical challenges would need to be tackled to advance the transition are: Managing renewables variability; Scaling emerging power systems; Flexing power demand; Securing land for renewables; Connecting through grid expansion; Navigating nuclear and other clean firm energy; Driving BEVs beyond breakeven; Going the distance on BEV range; Loading up electric trucks; Charging up EVs; Refueling aviation and shipping; Furnacing low-emissions steel; Cementing change for construction; Cracking the challenge of plastics; Synthesizing low-emissions ammonia; Heating other industries;  Facing the cold with heat pumps; Bracing for winter peaks; Unearthing critical minerals; Harnessing hydrogen; Scaling hydrogen’s infrastructure; Managing biofuels footprint; Expanding energy efficiency; Capturing point-source carbon; and Capturing atmospheric carbon.

This research primarily uses the 2023 McKinsey Achieved Commitments scenario, not as a forecast, but to understand the physical challenges to overcome.   Under this scenario, billions of low-emissions assets—for instance, about one billion EVs, over 1.5 billion heat pumps, and about 35 terawatts of low-emissions power generation capacity—would need to be deployed by 2050 alongside scaling supporting infrastructure such as the grid, EV charging stations, and supply chains.

About half of energy-related CO2 emissions reduction depends on addressing the most demanding physical challenges. Examples are managing power systems with a large share of variable renewables, addressing range and payload challenges in electric trucks, finding alternative heat sources and feedstocks for producing industrial materials, and deploying hydrogen and carbon capture in these and other use cases.

The most demanding challenges share three features. First, some use cases lack established low-emissions technologies that can deliver the same performance as high-emissions ones. Second, the most demanding challenges depend on addressing other difficult ones, calling for a systemic approach. Finally, the sheer scale of the deployment required is tough, given constraints and the lack of a track record.

Understanding these physical challenges can enable CEOs and policy-makers to navigate a successful transition. They can determine where to play offense to capture viable opportunities today, where to anticipate and address bottlenecks, and how best to tackle the most demanding challenges through a blend of innovation and system reconfiguration.

3 key takeaways from the report

1. The energy transition is in its early stages, with about 10 percent of required deployment of low-emissions technologies by 2050 achieved in most areas. Optimized over centuries, today’s energy system has many advantages, but the production and consumption of energy accounts for more than 85 percent of global carbon dioxide (CO2) emissions.
2. The energy transition involves the physical transformation of seven deeply interlinked domains. The first is the power domain, which needs to reduce its own emissions and to scale dramatically to provide low-emissions energy to the three large consuming domains: mobility, industry, and buildings. The final three domains are enablers of the energy transition: raw materials, especially critical minerals; new fuels, such as hydrogen and other energy carriers; and carbon and energy reduction.
3. Twenty-five interlinked physical challenges related to the seven domains would need to be tackled to advance the transition. They involve developing and deploying new low-emissions technologies and entirely new supply chains and infrastructure to support them. Understanding these physical challenges can enable CEOs and policy-makers to navigate a successful transition. 

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Topics:  Energy, Environment, Clean Energy, Decision-making; Electric Vehicles, Industry