Sector Outlook 2024: Transitional Energies
Low-carbon energy technologies are growing, but bottlenecks could slow the energy transition at a time when the rollout of clean technologies needs to accelerate.
Global energy sector 2023 models the outlook for demand and supply of energy commodities across a 1.5°C pathway, aligned with the Paris Agreement, and four bottom-up energy transition scenarios. These energy transition scenarios examine outcomes ranging from warming of 1.6°C to 2.9°C by 2100. These wide-ranging scenarios sketch a range of outcomes based on varying underlying assumptions—for example, about the pace of technological progress and the level of policy enforcement. The scenarios are shaped by more than 400 drivers across sectors, technologies, policies, costs, and fuels, and serve as a fact base to inform decision makers on the challenges to be overcome to enable the energy transition.
As economies recover from the recent energy crisis, there is opportunity to reflect on the progress of the energy transition. For example, 2023 saw strong growth in the build-out of multiple low-carbon technologies for energy production and consumption. Despite uncertainties including price spikes, volatility, and security of supply, the uptake in solar photovoltaic (PV), electric vehicles (EVs), and electric heat pumps was higher than ever before, and the expansion of wind capacity in 2022 was the third highest on record (after 2020 and 2021), despite significant challenges in the industry, particularly in offshore wind. Five low-carbon technologies are projected to be critical for the energy transition: solar, wind, EVs, heat pumps, and green hydrogen. These belong to a larger family of climate technologies needed to deliver a deep decarbonization of the whole economy.
Yet, going forward, multiple bottlenecks need to be overcome for the continued growth of these low-carbon energy technologies. While concerted action would be needed to address these bottlenecks, the growth trajectory of these important technologies could offer major opportunities for investment and innovation—and overcoming the hurdles would help keep the energy transition on track.
Progress has been made over the last decade
The last decade has seen the net-zero transition gain momentum. There has been a significant increase in governmental and corporate commitments for decarbonization. The Paris Agreement has been adopted by 196 parties, representing 98 percent of greenhouse gas (GHG) emissions, and more than 80 countries have integrated net-zero objectives into law or policy documents. More than 700 companies have integrated net-zero objectives into their strategies, and low-carbon investments increased every year by around 20 percent since 2013, reaching $1.6 trillion in 2022.
However, despite this progress, more must be done to reach key climate goals. With the current rate of global emissions, the carbon budget required for a 1.5°C pathway is projected to be depleted before 2030, and temperatures are projected to rise by 2.3°C by 2050 in the Current Trajectory scenario. Accelerating the uptake of low-carbon energy technologies and reducing emissions is therefore a key priority for the energy transition.
More must be done to control rising temperatures
Over the last decade, key low-carbon energy technologies such as wind and solar power, have grown their share in the energy mix from 1 percent to 3 percent in 2022.
Solar PV has seen cost reductions of 90 percent, while costs have dropped by 60 percent for onshore wind and by 70 percent for offshore wind. Efficiency has also improved by 25 percent for solar PV and 45 percent for onshore wind.
These technologies have also seen rapid scale-up, with an annual growth of 53 percent, 21 percent, and 9 percent CAGR between 2013 and 2022 for EV sales, solar capacity additions, and total wind capacity additions, respectively.
However, to meet current global net-zero commitments, the speed at which wind and solar generation needs to scale has to grow fourfold (from 2 percentage point increase between 2012-2022 to 8 percentage point increase in 2022-2032). Under the Achieved Commitments scenario, around a third of the energy mix needs to come from low-carbon energy sources by 2032, with growth needing to come from both new and legacy low-carbon energy sources.