Sector Outlook 2024: Low-Carbon Technologies
Five low-carbon technologies projected to be critical for transition
To reduce emissions and increase the pace of decarbonisation, the rapid scale-up of several key low-carbon energy technologies is vital. In particular, electrification is key to reducing emissions, which will require both switching end-use demand to electricity (for example, EVs and heat pumps, and green hydrogen for hard-to-abate sectors like heavy transport and industry), as well as generating low-carbon power, such as solar and wind.
The industry has responded with five key technologies that are projected to be major drivers of the energy transition: solar, wind, EVs, heat pumps, and green hydrogen. Together, they could be responsible for more than half of emission abatement, beyond energy efficiency and demand reduction levers. The bottom-up energy transition scenarios in this analysis project a strong scale-up globally of these five key technologies in the next decade:
installed solar capacity is projected to grow by three to four times;
installed wind capacity is projected to grow two- to threefold;
the share of EVs in total passenger car sales is projected to grow by two to five times;
the number of installed heat pumps is projected to grow by three to seven times; and
installed electrolyser capacity is projected to grow 5 to 27 times.
Overcoming limits may be critical for scaling up key technologies
Scaling up these technologies at the necessary pace to keep in step with global net-zero commitments is projected to require significant effort, including the expansion of supply chains, which could pose major challenges. We stress-tested different scenarios for these five key electrification technologies by assessing them across six potential limitations that could restrict their growth, with the aim to better understand the following questions:
Materials: Will there be sufficient availability of key materials, such as lithium, steel, and copper, to facilitate all new clean energy technologies?
Manufacturing and labor: Is there adequate manufacturing or assembly capacity and labor to meet forecasted growth in clean energy technology?
Land: Will there be enough land available for wind and solar generation, for example?
Infrastructure: Will the required infrastructure, such as grid transmission and distribution (T&D) for solar, EV charging infrastructure (EVCI), and hydrogen pipelines and fuelling stations, be built or expanded fast enough to meet the anticipated growth?
Cost competitiveness: Will these technologies be able to compete with conventional and alternative technologies in terms of cost, especially in the context of concerns about energy prices and affordability for households and commercial consumers and the competitiveness of industries?
Investments: Is a sufficient amount of capital mobilised to finance the energy transition and invest in the low-carbon energy technologies across different regions, including in emerging economies?
Scaling up electrification technologies requires significant effort
All technologies are expected to be constrained by material and infrastructure bottlenecks, if left unaddressed. Overall, the biggest bottlenecks affecting all five technologies are expected to be the availability of key materials, especially lithium for EVs, iridium for green hydrogen electrolysers, and rare earth elements, including dysprosium and terbium, for wind. Infrastructure could also become a significant bottleneck, including power grids for renewable energy sources (RES), hydrogen distribution and fuelling networks, and, to lesser extent, EV charging networks.
The biggest bottlenecks in scaling wind are expected to be materials scarcity, local land regulations, and speed of investments. The highest-risk bottleneck is projected to be in materials—specifically the supply of rare earth metals for magnets, with severe imbalances in magnets for predominantly offshore wind expected by the end of this decade. Medium-risk bottlenecks could arise in land, infrastructure, and investment. Onshore wind is not expected to be constrained by land on a global level, but for some countries, due to land characteristics (such as mountains or islands) or regulations (slow permitting and minimum distance to built environments), land could be scarce.
In power T&D infrastructure, grid build-out would need to double until 2050 to meet commitments, which represents a slowdown compared to the pace of growth in the past five decades. However, execution at grid operators could be at risk due to a lack of technical personnel and slower pace of investments. Investments in wind generation have recently slowed down due to the pressure on returns as a result of increased interest rates and higher material and building costs, which could put future investments at risk.
The major bottlenecks for solar PV scale-up are projected to center on materials scarcity. Copper and tin are the most critical materials and will constitute the main bottleneck of solar PV development in most scenarios. However, unlocks are available, as supply could ramp up (especially for tin). The other medium-risk bottleneck facing solar is in infrastructure, which faces similar challenges concerning grid build-out as wind for large-scale developments.
Green hydrogen is projected to face significant risks across all bottlenecks assessed. In materials, the supply of iridium would need to ramp up to meet demand expectations. However, this lack of supply could in part be unlocked by changing from electrolyzers based on proton exchange membrane technology to other technologies. In manufacturing, around 130–345 gigawatts (GW) of electrolyzer capacity could be required to meet green hydrogen demand in 2030, of which 246 GW has been announced to date. However, only 2 GW is currently operational, and a final investment decision has been made for only another 7 GW (less than 5 percent of required capacity). For infrastructure, new fueling stations, transport capacity (pipelines and shipping), and storage terminals are needed. Green hydrogen is also expected to struggle to be cost competitive with blue or grey hydrogen before 2030 in most geographies, putting all scenarios relying on major green hydrogen expansion at risk.
Heat pump costs would need to come down to be competitive with gas-based alternatives. For most regions, although the total cost of ownership (TCO) for heat pumps is getting close to cost-competitiveness in 2030, it still remains more expensive than natural gas-based heating without subsidies. In manufacturing, heat pump demand growth is expected to be met by expanding current production capacity, but might fall short in faster scenarios, as these would require the opening of new production capacity in the short term.
Battery material is expected to be the key constraint to accelerated EV growth, but unlocks are available. Material availability is expected to be sufficient up to the Current Trajectory scenario, but Further Acceleration and Achieved Commitments scenarios would require material substitutions or other levers to meet goals. Shifting from nickel, manganese, cobalt-based batteries to manganese-based batteries could help in this regard. Other risks include manufacturing, where adjusted supply capacity may be sufficient to balance the lithium-ion battery market in 2030 up to the Further Acceleration scenario. Regarding cost competitiveness, the TCO of EVs is expected to be competitive with internal combustion engines by 2025 in most regions (including subsidies), and could become cheaper into the future, however, in the Further Acceleration and Achieved Commitments scenarios, material shortages are expected to delay the TCO crossover point.
Significant investment is needed for scale-up
An orderly net-zero energy transition would require additional investments in order to enable a much faster ramp-up of new technologies.
By 2030, $4 trillion of additional investments could be needed per year compared to 2020 to reach net zero (such that total investments represent around 9 percent of global GDP by 2030 compared to around 7 percent today). This is $2 trillion more compared to the Current Trajectory scenario. On average, this also implies reallocating $1 trillion that is spent on high-emission assets per year today to clean energy assets and infrastructure until 2050.
Unlocks are available, but require concerted action
Although the identified bottlenecks pose major risks for a successful, fast, and orderly energy transition, there are also multiple unlocks that are available today to resolve them and thus mitigate the risks of a delayed transition. While concerted action would be necessary to implement these unlocks, they could also represent significant opportunities for investment and innovation. To overcome bottlenecks in each of the six dimensions while seizing the associated opportunities, the following actions may be needed:
Materials: To overcome the important bottlenecks associated with materials, there is an opportunity to invest in various initiatives that could increase supply and decrease demand for critical materials, such as investment into expanding sustainable supply. Action could be taken to fast-track technologies with lower intensity of critical materials (for example, electrolyzer material switches), and increase recycling rates, process efficiencies, and logistics. Regarding tin, other semiconductor packaging could be considered to manage demand.
Manufacturing and labor: Investing in initiatives to increase economies of scale and decrease costs for key energy transition technologies could be key. This could include public–private partnerships to accelerate the ramp-up of manufacturing capacity and improve resilience. Regional coordination would also be important to ensure economies of scale to lower unit costs.
Land: Land development could be an important consideration for decision makers. There could be integration opportunities, such as rooftop solar and partnerships with food producers for agrivoltaics. Integrated land use planning could help guide RES development to suitable locations. Regulations could be reviewed by decision makers to ensure they will allow the scale-up of RES to meet targets. Finally, governments could engage citizens in the landscape integration of new RES projects. Overall, there may also be a continued need to accelerate project approval timelines to match the ambitions set in many geographies.
Infrastructure: Stakeholders could invest in repurposing existing infrastructure and developing new infrastructure. They could assess current infrastructure shortcomings ahead of the energy transition, in contrast to existing grid T&D mechanisms in many countries where investment in the grid only takes place when there is a specific request from end users, creating significant delays compared to investing ahead. Stakeholders could also review systems and encourage investments ahead of bottlenecks (for example, in power grids), repurpose existing infrastructure where possible (for example, gas pipelines for hydrogen blending), and encourage the development and adoption of flexibility and demand-side response by industry and households.
Cost competitiveness: Stakeholders could endeavour to accelerate the electrification of society to speed up the learning curve and increase the cost-competitiveness of low-carbon technologies. Shifting fossil subsidies and support to energy transition technologies in line with net-zero commitments could be a key step, while at the same time ensuring that competitiveness of (critical) industries is maintained to avoid economic harm. Finally, governments could consider how low-income households can be supported to invest in new and ultimately cheaper technologies and ensure affordability.
Investments: Stakeholders can track investments and look for opportunities to facilitate investments. They could incentivize involvement from public and private institutions to make investments accessible to a wider range of consumers, guide investments to ensure critical technologies across sectors and regions are developed, and guide investments to net present value-negative areas where additional de-risking is needed.
Implementing these unlocks could be critical to ensuring the rapid scaling of key technologies to enable a fast and orderly energy transition and meet pressing climate goals.