Between 2018 and 2023, solar PV and wind capacity more than doubled worldwide, and their share of electricity generation nearly doubled, according to the IEA. Fuelled by supportive government policies and continued cost reductions, the capacity of these renewable sources is projected to keep expanding rapidly towards 2030, the report says. Solar PV and wind are crucial technologies for decarbonisation – especially in the electricity sector, where they account for two-thirds of reductions in CO₂ emissions on a pathway towards net zero by mid-century.

The report, the first of its kind, finds that in order to maximise the advantages of this additional capacity, variable renewable energy (VRE) sources need to be well integrated into power systems as they are deployed. According to the IEA, delaying the implementation of measures to support integration could result in electricity generation from solar PV and wind being 15% lower in 2030 and could shave five percentage points off their share of the global electricity mix.

According to the analysis, in a scenario in which countries meet their announced energy and climate goals, those that currently have low shares of VRE in their power mixes account for two-thirds of generation growth to 2030. They can typically boost deployment without enacting sweeping, system-wide changes. Well-known and tested measures such as enhancing the flexibility of existing assets and improved forecasting – implemented gradually as the need arises – tend to be sufficient.

Tougher challenges typically materialise at higher levels of solar PV and wind penetration, the report finds. However, frontrunner countries – including Denmark, Ireland, South Australia and Spain – are finding ways to address these issues, clearing the way for others. Developing storage and new power grid technologies, for example, is playing an important role in managing variations in solar PV and wind output throughout the day and across seasons.

According to the report, most technological solutions to address emerging hurdles – namely, a higher need for stability and flexibility – are either mature or nearing maturity, and their successful rollout often lies in appropriate policy and regulatory action rather than new technological breakthroughs. Even so, incorporating higher levels of variable renewables into power systems requires rethinking the ways in which they have traditionally been planned and operated. This will necessitate proactive measures globally as the uptake of renewables continues apace.

What’s affecting the pace of the energy transition?

Renewables are expected to play a major role in future energy generation. Low-carbon sources are projected to account for 65–80% of global power generation by 2050, driven by cost reductions in technologies like solar and wind, according to a new report by McKinsey. However, it warns that challenges remain in ensuring economic viability for renewables, particularly in terms of pricing and firmness, which refers to the ability to provide consistent power supply. The lower marginal costs of renewables could lead to issues like negative pricing, potentially impacting the business case for new projects. Firming capacity, such as through battery storage or gas, will be necessary to ensure reliability, but this could raise overall costs.  

More generally, the global energy transition is entering a more challenging phase, marked by rising costs, increased complexity and greater technological challenges, the report concludes. Growing energy demand, alongside growing emissions, could slow the transition, necessitating a rethink of both low-carbon and fossil fuel strategies to meet the Paris Agreement goals. Urgent action is required to accelerate the pace of change, balancing the clean energy transition with affordability, system resilience and energy security, all within an increasingly uncertain macroeconomic environment, the report finds.

McKinsey’s Global Energy Perspective 2024 provides a comprehensive demand outlook for 68 sectors and 78 fuels along a 1.5°C pathway, in line with the Paris Agreement, and outlines three bottom-up energy transition scenarios. The report stresses that navigating the transition away from fossil fuels will require a multifaceted approach, as no single technology or solution can fully address the challenges. A holistic transformation of the global energy system is necessary, incorporating proven and emerging levers. To do this, considerations beyond technological feasibility will need to be addressed, spanning capital deployment, regulatory adjustments, and political and public support amidst competing economic and societal priorities.

One key finding is that energy demand is rising faster than anticipated and fossil fuels are likely to play a continued role in the energy system, potentially keeping emissions on an upward trajectory until around 2025. The scenarios begin to diverge towards 2030, with all showing a decline in emissions by 2050. Economic factors such as the growing cost-effectiveness of low-carbon technologies in sectors like power and road transport will drive this emissions decline, with solar PV and electric vehicle (EV) adoption seeing particular growth in regions like Europe and China. However, global temperature increases are still projected to exceed 1.5°C by 2050, ranging from 1.8–2.6°C depending on the scenario.

Emerging economies, especially in ASEAN countries, India and the Middle East, will drive much of the global energy demand growth, which could increase by 11–18% by 2050. These regions are expected to account for between 66–95% of the growth in energy demand to 2050, reshaping global energy trade flows and increasing the region’s geopolitical importance. In the US, industrial resurgence would drive demand growth through electrification, while in Europe, by contrast, continued deindustrialisation would lead to declining demand in the region.

According to the report, electrification is expected to accelerate significantly, with electricity consumption potentially doubling or tripling by 2050, depending on the scenario. New sectors such as data centres, driven by artificial intelligence, cloud solutions, and cryptocurrency, could account for 5–9% of global electricity demand by 2050. Similarly, green hydrogen and EVs will see significant growth, with electricity consumption in transport projected to increase by around 10% annually in certain scenarios.

Despite the rise of renewables, fossil fuels will still contribute between 40–60% of global energy demand by 2050. Investments in fossil fuels are expected to continue for the next decade to ensure energy demand is met, with the transition period characterised by a plateau in fossil fuel demand rather than a sharp decline.

Significant investments in grid infrastructure will be required to support the energy transition, with transmission and distribution investments needing to triple by 2050. Challenges such as grid congestion and labour shortages could hinder the progress of electrification and renewable energy deployment. Furthermore, the slowdown in energy efficiency technology uptake in regions like Europe could mean that the expected demand growth may not fully materialise, the report concludes.