McKinsey & Company recently unveiled its tenth annual Global Energy Perspective, which offers a comprehensive analysis of the forces shaping the energy sector and projects energy demand and supply trends across a range of fuel types and regions through 2050.
The report reveals that the world may be moving closer towards a slower energy transition across all scenarios, as governments and policymakers increasingly emphasize energy affordability and security amid geopolitical uncertainty, the consulting firm said.
The Global Energy Perspective aims to highlight the gap between the world’s current trajectory and what would be needed to avoid the worst effects of climate change as defined by the Paris Agreement.
Scenarios
The Global Energy Perspective 2025 presents a detailed analysis of 77 demand segments and 76 fuels across the world. It presents three bottom-up scenarios that represent possible energy transition pathways: Slow Evolution, Continued Momentum, and Sustainable Transformation.
"They are built on credible input assumptions and the extrapolation of current trends, reflecting the complexity of the many factors influencing the energy transition. The scenarios provide a baseline for modeling additional forces acting on the system, such as tariffs, GDP shifts, technology breakthroughs, and supply chain disruptions," McKinsey said.
Each scenario reflects a different balance among affordability (including varying assumptions about technology learning curves and costs), decarbonization (including varying assumptions about carbon price and policy), and supply security.
They differ based on the assumed speed of the energy transition to 2050.
The Slow Evolution scenario assumes the slowest decline in clean-technology costs and the least policy ambition. In contrast, the Sustainable Transformation scenario assumes the highest learning rates, cost declines, CO2 prices, and policy incentives. The security-of-supply variable changes across scenarios and regions, depending on local circumstances, including regional resource endowments.
The scenarios do not constitute McKinsey’s view on what should happen but rather present a range of plausible outcomes. We do not assign probabilities to the scenarios, recognizing the complexity of the energy transition.
Key insights from the report include:
- Clean, firm power sources and renewable storage technologies are likely to expand: These sources, such as geothermal power, hydropower and nuclear power are expected to grow at 3% per year through 2050 in the Continued Momentum scenario.
- Crucial alternative fuels are not likely to achieve broad adoption before 2040 unless mandated: Clean hydrogen is not yet cost competitive at scale, so it is expected to play a limited role in the energy mix across scenarios, with no certainty around the completion of clean hydrogen projects in the next 10 years.
- Fossil fuels are projected to retain a large share of the energy mix beyond 2050: They could make up approximately 41% to 55% of global energy consumption by 2050 depending on the scenario.
- Low-carbon power will grow steadily: In most regions, low-carbon power could account for more than 65% of power generation by 2050 in a continued momentum scenario.
- Global power demand is expected to increase, driven by electrification: Data centers could contribute a transformative new share of demand in the near term (average 17% global growth per year between 2022-2030, especially in OECD countries).
- A system-wide view could offer a faster and more cost-effective path to emission reduction: The final 5% decarbonization of the power sector could cost $90-170 per metric ton of CO2, compared to $20 per metric ton for 45-70% decarbonization.
The report shows that there is no silver bullet for decarbonization and that different countries and regions will increasingly follow distinct trajectories based on their local economic conditions, resource endowment, and the realities facing particular industries, McKinsey said.
In parallel, McKinsey has also recently released its Global Materials Perspective 2025 underscoring the intertwined nature of these vast global value chains.
