Energy 2050: Insights from the ground up
When it comes to energy, there
is one matter everyone agrees on. For the near future, at least, the world will
need more of it—and how it is produced and used will be a critical factor in
the future of the global economy, geopolitics, and the environment. With that
in mind, McKinsey took a hard look at the data, modeling energy demand from the
bottom up, by country, sector, and fuel mix, with an analysis of current
conditions, historical data, and country-level assessments. On this basis,
McKinsey’s Global Energy Insights team has put together a description of the
global energy landscape to 2050.
It is important to remember that this is a
business-as-usual scenario. That is, it does not anticipate big disruptions in
either the production or use of energy. And, of course, predicting the future
of anything is perilous. With those caveats in mind, here are four of the most
interesting insights from this research.
Global energy demand will continue to grow. But growth will be slower—an average of about 0.7
percent a year through 2050 (versus an average of more than 2 percent from 2000
to 2015). The decline in the rate of growth is due to digitization, slower
population and economic growth, greater efficiency, a decline in European and
North American demand, and the global economic shift toward services, which use
less energy than the production of goods. For example, in India, the percentage
of GDP derived from services is expected to rise from 54 to 64 percent by 2035.
And efficiency is a forthright good-news story. By 2035, McKinsey research
expects that it will take almost 40 percent less fuel to propel a fossil-fueled
car a mile than it does now. By 2050, global “energy intensity”—that is, how
much energy is used to produce each unit of GDP—will be half what it was in
2013. That may sound optimistic, but it is based on recent history. From 1990
to 2015, global energy intensity improved by almost a third, and it is
reasonable to expect the rate of progress to accelerate.
Demand for electricity will grow twice as
fast as that for transport. China
and India will account for 71 percent of new capacity. By 2050, electricity
will account for a quarter of all energy demand, compared with 18 percent now.
How will that additional power be generated? More than three-quarters of new
capacity (77 percent), according to the McKinsey research, will come from wind
and solar, 13 percent from natural gas, and the rest from everything else. The
share of nuclear and hydro is also expected to grow, albeit modestly.
What that means is that by 2050, nonhydro
renewables will account for more than a third of global power generation—a huge
increase from the 2014 level of 6 percent. To put it another way, between now
and 2050, wind and solar are expected to grow four to five times faster than
every other source of power.
Fossil fuels will dominate energy use
through 2050. This is because of the massive
investments that have already been made and because of the superior energy
intensity and reliability of fossil fuels. The mix, however, will change. Gas
will continue to grow quickly, but the global demand for coal will likely peak
around 2025. Growth in the use of oil, which is predominantly used for
transport, will slow down as vehicles get more efficient and more electric;
here, peak demand could come as soon as 2030. By 2050, the research estimates
that coal will be down to just 16 percent of global power generation (from 41
percent now) and fossil fuels to 38 percent (from 66 percent now). Overall,
though, coal, oil, and, gas will continue to be 74 percent of primary energy
demand, down from 82 percent now. After that, the rate of decline is likely to
accelerate.
Energy-related greenhouse-gas emissions
will rise 14 percent in the next 20 years. That is not what needs to happen to keep the
planet from warming another two degrees, the goal of the 2015 Paris climate
conference. Around 2035, though, emissions will flatten and then fall, for two
main reasons. First, cars and trucks will be cleaner, due to more efficient
engines and the deployment of electric vehicles. Second, there is the shift in
the power industry toward gas and renewables discussed above. The
countervailing trends are that there are likely to be some 1.5 billion more people
by 2035, and global GDP will rise by about half over that period. All those
people will need to eat and work, and that means more energy.
The world is full of unpredictable and
sometimes wonderful surprises, so I accept that these numbers are unlikely to
be perfect. As with any forecast, they are based on assumptions—about China and
India, for example—as well as about oil prices and economic growth. Other
sources see different outlooks. Concerted global action to reduce
greenhouse-gas emissions, for example, could change the arc of these trends.
Technological disruptions could also bend the curve.
For business and political leaders, though, the
implications are clear. Given that global energy demand will grow, it is likely
that prices will continue to be volatile. Better energy efficiency, then, is an
important way to reduce related risks. Technology development is critical to
ensuring that the world gets the energy it needs while mitigating environmental
harm. This will require substantial new investments. Finally, to encourage the
creation of the clean and reliable energy infrastructure that the world needs,
energy producers will need to work with local, regional, national, and
international regulators. Getting things right the first time is essential; there
is extensive evidence to show that dramatic changes in policy act as a powerful
deterrent to energy investments by producers. Given the scale of the new
investments needed, this will be a factor of growing importance.
By Scott Nyquist
http://www.mckinsey.com/industries/oil-and-gas/our-insights/energy-2050-insights-from-the-ground-up?cid=sustainability-eml-alt-mip-mck-oth-1611
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