New Technologies In Energy Transition – Analysis
Energy transition refers to the global energy sector’s shift from fossil-based systems of energy production and consumption — including oil, natural gas and coal — to renewable energy sources like wind and solar, as well as lithium-ion batteries. The increasing penetration of renewable energy into the energy supply mix, the onset of electrification and improvements in energy storage are all key drivers of the energy transition. Regulation and commitment to decarbonization has been mixed, but the energy transition will continue to increase in importance as investors prioritize environmental, social and governance (ESG) factors.
The energy transition is by no means a linear process. Instead, it is made up of different phases that build upon each other. Even as the share of renewables in electricity production increases, renewable energy sources often remain intermittent. For example, there are only a limited number of hours of sunlight per day and inevitable down time at night. Wind strength varies too. All this means that supply and demand is not always aligned. In other words, sufficient energy storage and distribution systems are crucial to achieving a sustainable energy transition and reliably balancing supply and demand. No doubt, sufficient storage capacity is developed; carbon capture utilisation and storage can be used as an intermediate measure to collect the CO2 emissions generated for as long as fossil fuels continue to be burned.
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, much 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. Accelerating the uptake of low-carbon energy technologies and reducing emissions is therefore a key priority for the energy transition.
Key low-carbon energy technologies such as wind and solar power; over the last decade 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. The pace of deployment of some clean energy technologies – such as solar PV and electric vehicles (EVs) – shows what can be achieved with sufficient ambition and policy action, but faster change is urgently needed across most components of the energy system to achieve net zero emissions by 2050.
Electric car sales reached a record high of more than 10 million in 2022, a nearly tenfold increase in just five years. Renewable electricity capacity additions rose to 340 gigawatts (GW), their largest ever deployment. As a result, renewables now account for 30 percent of global electricity generation. Investment in clean energy reached a record USD 1.6 trillion in 2022, an increase of almost 15 percent from 2021, demonstrating continued confidence in energy transitions even in an uncertain economic climate. However, the transition to clean energy is occurring at different speeds across regions and sectors. For example, nearly 95percent of global electric car sales in 2022 took place in China, the United States and Europe. Stronger international cooperation is needed to spread progress on electric cars and other key technologies to all regions, particularly emerging and developing economies.
Clean energy deployment is also occurring faster in some parts of the energy system – such as electricity generation and passenger cars – where costs have fallen and technologies are already relatively mature. Meanwhile, rapid innovation is still needed to bring to market clean technologies for parts of the energy system where emissions are harder to tackle, such as heavy industry and long-distance transport. Positive steps on innovation have been made in the past few years, but a further acceleration is needed to soon bring to market more low-emissions technologies for these areas.
The clean energy economy is rapidly taking shape, but even faster progress is needed in most areas to meet international energy and climate goals. The extraordinary growth of key technologies like solar and electric cars shows what is possible.
Renewable electricity is expected to account for a large share of energy consumption by 2050, but not all of it. Hydrogen has the potential to help bridge the gap, including as a vector for renewable energy storage, alongside batteries. Renewables-based hydrogen can also be used as feedstock for the chemical sector and as fuel. It can provide a medium-term solution for certain regions or sectors that may otherwise be hard to decarbonise.
The integration of renewables into the global energy system requires improved control systems that can accommodate these inherently variable sources of energy. Smart grids can play an important role here. As for storage capacity for renewable electricity, according to the Sustainable Development Scenario of the International Energy Agency, close to 10 000 gigawatt-hours (GWh) of battery and other forms of energy storage will be required by 2040, compared with around 200 GWh in 2020. To address this challenge, considerable progress is needed to find ways of storing electricity in large quantities and at a price affordable to suppliers and consumers.
The need for urgent and sustained cuts in greenhouse gas emissions is clear, but the path towards it is unchartered. An unprecedented transformation of the energy system is required to break the link between energy and emissions – all the while allowing countries to develop. This challenge is acute for poor countries, where access to electricity is frequently low but population growth is among the fastest in the world. There is a pressing need for clean, affordable and reliable energy.
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. 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.
Although many sectors are not yet fully on track for international climate goals, yet there are crucial advances over the past year. For the first time ever, announced manufacturing capacity for electric vehicle batteries has reached levels sufficient to fulfil expected demand requirements in 2030 in the IEA’s scenario for achieving net zero emissions by 2050. This is backed by the momentum from major industrial strategies such as the Inflation Reduction Act in the United States and the European Union’s Green Deal Industrial Plan.
Solar PV has been upgraded to “on track”, as its progress now aligns with milestones consistent with net zero ambitions. Solar PV generated a record of nearly 1300 terawatt-hours (TWh) in 2022, up 26 percent from 2021 and logging the largest absolute generation growth of all renewable technologies in 2022. The number of manufacturing projects in the pipeline for solar PV also saw massive growth in the context of widespread government support, especially in China, the United States and India. If all announced projects are realised, global manufacturing capacity for solar PV will more than double in the next five years, outpacing 2030 demand in the IEA’s Net Zero by 2050 Scenario.
Notable progress too was made in the buildings sector – which has been upgraded from “not on track” to “more efforts needed” in the Tracking Clean Energy Progress three-tier rating system. Governments are increasingly introducing stringent building energy codes and performance standards, and the use of efficient and renewable technologies for buildings such as heat pumps and low-emissions cooling equipment is accelerating. Energy efficiency policies were also strengthened globally in the past year, such as in India, which enacted new policies for appliances, vehicles, industrial facilities and commercial buildings.
Policy is advancing in many regions. Earlier this year, for example, Indonesia became the first country in Southeast Asia to establish a legal and regulatory framework for carbon capture, utilisation and storage, and Namibia released a hydrogen strategy in late 2022. The world’s largest battery manufacturer announced it would begin production of sodium-ion electric vehicles batteries, an alternative battery chemistry that can help reduce reliance on in-demand critical minerals. Two large-scale demonstrations of solid oxide electrolysers, a highly efficient technology to produce low-emission hydrogen, started operating earlier this year. There have been positive steps in innovative clean technologies for aluminium refining and cement-making – both industries in which emissions are difficult to tackle. Furthermore, in early 2023, the first shipment of liquid carbon dioxide (CO2) was taken from Belgium to be geologically stored off the coast of Denmark beneath the North Sea, a landmark achievement for the carbon capture sector.
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). 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.
To reduce emissions and increase the pace of decarbonization, the rapid scale-up of several key low-carbon energy technologies may be necessary. 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. Five low-carbon technologies projected to be major drivers of the energy transition are: 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.
All technologies are expected to be constrained by various bottlenecks such as material and infrastructure, if not unaddressed. Overall, the biggest bottlenecks affecting all 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 fueling 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. 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 too centred on materials scarcity. Copper and tin are the most critical materials and will constitute the main bottleneck of solar PV development. The other 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 especially 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 electrolysers based on proton exchange membrane technology to other technologies. In manufacturing, around 130–345 gigawatts (GW) of electrolyser 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.
Accelerating the take‐up of heat pumps requires overcoming a number of barriers.Chief among them are the higher upfront cost of buying and installing the devices relative to other heating options; other non‐cost deterrents to consumer adoption; manufacturing constraints; and potential shortages of qualified installers. Shortages of qualified installers, already a bottleneck in many key heating markets, call for large‐scale worker reskilling. Concerted action by governments, in partnership with the heat pump industry, is needed to address these hurdles and achieve higher rates of deployment. Accelerating deployment of heat pumps in line with national climate targets is well within reach but requires further efforts from policy makers and industry.The market growth in heat pumps needed this decade to hit national climate targets is not as steep as the expansion we have already seen in solar PV and electric vehicles, although there would need to be a further acceleration to get on track for the IEA’s Net Zero Emissions by 2050 Scenario.
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. The total investments would be around 9 percent of global GDP by 2030 compared to around 7 percent today. This implies reallocating $1 trillion that is spent on high-emission assets per year today to clean energy assets and infrastructure until 2050. The additional upfront investment required is sizable, reaching USD 160 billion annually by 2030, but these incremental costs are outweighed by economy‐wide savings on fuel, especially if today’s high prices persist. Governments and industry have vital roles to play to address persistent market barriers and enable heat pumps to play their full part in addressing today’s most pressing issues – energy security, energy affordability, and rapid reductions in emissions.
No doubt, progress can be observed in the energy system, the majority are not yet on a path consistent with net zero emissions by 2050. Stronger policy support and greater investment are needed across a wide range of different technologies, in all regions of the world, to enable a broader and faster shift towards clean energy to keep net zero emissions by 2050 within reach. 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.
