New energy technologies will capture 65% of energy investments by 2035

Energy investments may need to increase by 4% per year to support the energy transition, with new technologies capturing almost 65% of investments until 2035, McKinsey & Company said in its new report entitled “Global Energy Perspective 2022”.

Renewables are expected to account for more than 30% of global investment over the next 15 years (excluding transmission and distribution reinforcement), twice as much as planned investment in conventional power generation, and almost on par with oil and gas investments, the report said.

The profitability (earnings before interest and taxes) of energy and decarbonization technologies is expected to increase by 5% per year from a low base of $300 billion today to around $1 trillion in 2050.

Projected profits for new technologies, such as clean hydrogen, electric vehicle charging, CCUS and sustainable fuels, in 2050 are expected to exceed total energy sector EBIT in 2021, the report notes.

Sustainable fuels

Demand for sustainable fuels is expected to triple over the next 20 years and by 2050 its share of transport energy demand could be between 6% and 37%, depending on net-zero ambition levels in the countries.

Sustainable fuels demand could reach 290 metric tons by 2035, mainly driven by road transport, while aviation demand driven by mandates could increase it to 400 Mt by 2050.

Investments in sustainable fuels are gaining momentum with $40-50 billion expected to flow by 2025. Around 49 Mt of sustainable fuel capacity is planned by 2025 and 70% of projects are already at the stage. financial investment decision (FID).

However, additional investments of between $1 trillion and $1.4 trillion are needed by 2040 to meet decarbonization commitments and regulated demand, the report notes.

Hydrogen

Announcements of clean hydrogen production projects tripled year-on-year in 2021. The report indicates so far that around 22 Mt of clean hydrogen capacity has been announced, or around 15-20% needs by 2035.

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

By 2050, hydrogen is expected to add about 18,000 TWh (terawatt hour) to electricity consumption or 36% of electricity demand growth and about 300 billion cubic meters (bcm) to gas demand natural.

Hydrogen demand is expected to quintuple by 2050, driven primarily by road, sea and air transport.

New industrial uses such as steelmaking and road transport could each account for one-third of hydrogen demand growth before 2035 and more than half of demand growth beyond 2035. The sectors could account for 17 % of total hydrogen demand by mid-century, report says.

Carbon capture and storage

Blue hydrogen production, iron and steel, and cement sectors together could account for 85% of total global CCUS adoption, the report notes.

The power sector’s CCUS capacity could reach 1-2 Gt by 2050 if renewable energy construction is constrained by rising land costs in the United States, and if India and China choose to avoid blocking young coal and gas power plants.

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

CO2 revenue patterns are uncertain as projected ₂ prices of up to $150-$205/tonne are likely insufficient to accelerate CCUS adoption to a net zero trajectory.

Significant additional revenue is needed to start CCUS, especially in the early years, given that less than a third of CCUS would need to be in the money without additional revenue streams. Cost-intensive segments, such as cement, iron and steel, are expected to absorb the majority of additional revenue, the report concludes.

(Writing by Sowmya Sundar; Editing by Anoop Menon)

(anoop.menon@lseg.com)