Understanding the Physical Realities of the Energy Transition

There has been meaningful momentum toward the energy transition, but a number of forces are creating uncertainty. They include shifting geopolitics, policy uncertainty in many countries, the macroeconomic environment, and rising energy demand from the adoption of artificial intelligence tools, to name a few.

But even in the face of these near-term uncertainties, it is important not to lose sight of the core—long-term—challenge at the heart of the transition. The energy transition is a physical transformation on a massive scale. Billions of parts associated with today’s highly complex, interconnected, and optimized system of energy production and consumption would need to be transformed—substituting high-emissions technologies that rely on fossil fuels with a new generation of low-emissions options—with an aspiration to do so in just decades. This will require tackling, as our 2024 report put it, the “hard stuff”—grappling with the physical challenges associated with the development and deployment of high-performing low-emissions technologies and the associated infrastructure and supply chains they need in order to operate.

We are already seeing the physical nature of the transition manifest. On the one hand, global physical deployment of clean technologies such as renewables and electric vehicles has continued to accelerate. Installed renewable capacity (led by record deployments of solar power) is estimated to have increased by more than 10 percent from 2023 to 2024, and passenger electric vehicle sales—both battery-powered (BEVs) and plug-in hybrids (PHEVs)—by more than 25 percent from 2023 to 2024. And technologies continue to improve, including, for instance, longer-ranging EVs, new stationary storage technologies, and air-source heat pumps that can provide uninterrupted heat at temperatures below minus 20°C.

Nevertheless, it is increasingly evident that more needs to be done to deal with physical challenges head on. For example, as power systems accommodate a higher share of renewables like solar and wind that are, by their nature, variable, there is growing recognition of the need to manage volatility. Rising energy demand from data centers has also demonstrated the challenge with scaling up power capacity. In the United States, interconnection projects typically take nearly five years from the interconnection request to commercial operation, and an estimated 70 percent of transmission lines are more than 25 years old and would need to be replaced within ten to 20 years.

Overall, more will need to be done to deal with the physical challenges associated with the large scale-up of low-emissions technologies. So what are those challenges and how should stakeholders navigate them? To support decision-making, our analysis published in 2024 is what we believe is the first comprehensive stock take of those physical challenges.

Key Insights for the Energy Transition:

1. Only about 10 percent of low-emissions technologies needed by 2050 to meet global commitments have been deployed

2. Electrifying heat will require managing higher demand peaks

3. For EVs to deliver on their potential, grids would need to be cleaner

4. Production of the big four industrial materials needs very high temperatures—and is harder to electrify and decarbonize

5. New low-emissions technologies need to be viable when windows for turning over assets present themselves

6. Capturing carbon has high potential but is challenging in some use cases

7. Hydrogen could also play an important role, but its distinctive features need to be balanced against efficiency challenges

8. Low-emissions technologies would require critical mineral extraction and refining capacity to be scaled substantially

FAQs:

Q: What are the main challenges of the energy transition?

A: The main challenges include deploying low-emissions technologies at scale, managing peak demand, ensuring clean grids for electric vehicles, decarbonizing industrial processes, capturing carbon emissions, optimizing the use of hydrogen, and scaling up critical mineral extraction.

Conclusion:

The energy transition is a complex and massive undertaking that requires addressing numerous physical challenges. Stakeholders must be prepared to deploy low-emissions technologies, manage peak demand, ensure grid cleanliness, decarbonize industrial processes, capture carbon emissions, optimize hydrogen use, and scale up critical mineral extraction. By understanding and tackling these challenges, the transition to a more sustainable energy system can be achieved.