Energy investments may need to grow four percent per annum to support the energy transition, with new technologies capturing nearly 65 percent of the investments to 2035, McKinsey & Company said in its new report titled ‘Global Energy Perspective 2022’.

Renewables are projected to account for more than 30 percent of the global investments in the next 15 years (excluding transmission and distribution reinforcements), twice as high as projected investments in conventional power generation, and almost on par with oil and gas investments, said the report.

Profitability (Earnings Before Interest and Taxes) for power and decarbonisation technologies are projected to grow at five percent per annum from a low base of $300 billion today to reach around $1 trillion in 2050.

Projected earnings for new technologies, such as clean hydrogen, EV charging, CCUS, and sustainable fuels, in 2050, is expected to surpass the 2021 total energy sector EBIT, the report noted.

Sustainable fuels

The demand for sustainable fuels is projected to triple over the next 20 years and by 2050, its share in the energy demand for transportation could be between 6 percent and 37 percent, depending on net-zero ambition levels across countries.

The demand for sustainable fuels could reach 290 metric tonnes by 2035 primarily driven by road transport while aviation demand-driven by mandates could take it further to 400 Mt by 2050.

Investments in sustainable fuels are gaining momentum with $40-$50 billion expected to be pumped in by 2025. About 49 Mt of sustainable-fuel capacity is projected by 2025 and 70 percent of the projects are already in the Financial Investment Decision (FID) stage.

However, further investments of between $1 trillion and $1.4 trillion are needed by 2040 to meet decarbonisation commitments and regulated demand, the report noted.

Hydrogen

Clean hydrogen production project announcements tripled year-on-year in 2021. The report said to date, around 22 Mt of clean hydrogen capacity announced, approximately 15–20 percent of what is needed by 2035.

Clean hydrogen supply is expected to reach 110 Mt by 2035 or 60 percent of the total hydrogen supply and 510 Mt by 2050 or 95 percent of the total supply.

By 2050, hydrogen is projected to add approximately 18,000 TWh (Terawatt-hour) of electricity consumption or 36 percent of electricity demand growth and around 300 billion cubic meters (bcm) to natural gas demand.

Hydrogen demand is projected to grow fivefold by 2050, driven primarily by road transport, maritime, and aviation.

New industrial uses such as iron and steel and road transport could account for a third each of the hydrogen demand growth before 2035 and for over half the demand growth beyond 2035. Demand for synfuels production, mainly kerosene, diesel, and ammonia for aviation and maritime sectors could amount to 17 percent of the total hydrogen demand by mid-century, as per the report.

Carbon Capture and Storage

Blue hydrogen production, iron and steel, and cement sectors could together account for 85 percent of global total CCUS uptake, the report noted.

Power sector CCUS capacity may reach 1-2 Gt by 2050 if renewable energy build-out is limited by increased land costs in the US, and if India and China choose to avoid stranding young coal and gas plants.

While CCUS is the only scalable solution for cement to reduce process emissions, the report noted that it is facing strong competition from alternatives in other segments.

CO2 revenue schemes are uncertain, as projected ₂ prices of up to $150–$205/ tonne are likely insufficient to accelerate CCUS uptake towards a net-zero trajectory.

Large additional revenue is required to kick-start CCUS, especially in early years, given that less than one third of CCUS is expected to be in the money without additional revenue streams. Cost-intensive segments, such as cement, and iron and steel, are projected to take the majority of additional revenues, the report concluded.

(Writing by Sowmya Sundar; Editing by Anoop Menon)

(anoop.menon@lseg.com)