McKinsey: Energy Transition Faces Challenges

Research from the McKinsey Global Institute (MGI) shows that despite considerable progress in the energy transition, it still faces challenges. 

The study reveals that only 10% of the necessary physical assets for a net-zero future have been deployed, showing urgent need for accelerated action in the sustainability sector.

The MGI research, which spans seven domains requiring physical transformation — including power, industry and mobility — provides a sobering assessment of the current state of the energy transition. 

Tiago Devesa, a Senior Fellow at MGI, explains: "We wanted to flip the paradigm in this report and focus on the physical realities—the nuts and bolts — in the here and now.

“What are the technologies, supply chains and infrastructure we need to run the high-performance low-emissions energy system of the future?

“This is not an abstract dollar number, goal or theoretical pathway.

“It’s the physical world that exists around us today. So, despite all the momentum, we’re still in very early stages of the energy transition."

The scale of energy transition challenges

The study's scope is vast, encompassing 60,000 power plants, more than 1.5 billion vehicles, and two million kilometres of oil and gas pipelines. 

Within this expansive framework, the MGI team identified 25 major physical challenges, categorising them into three levels of difficulty.

Mekala Krishnan, MGI Partner and Lead Researcher, says: "Half of the energy system-related emissions are in what we call Level 1 and Level 2 challenges — things that are relatively easy to solve. 

“It's a matter of how to best deploy mature technologies. But the remaining 50% are what we call Level 3 — the harder challenges."

These Level 3 challenges are particularly prevalent in areas such as hydrogen production, carbon capture, and industrial processes. 

In some of these sectors, current adoption rates are alarmingly low. 

"We're sometimes at 1% deployment or even less of where we will eventually need to be," Mekala says.

"Many of the technologies to produce low-emissions steel are relatively nascent, with issues to solve. 

“Then there is the challenge of scaling any new technology: we would need to retrofit massive facilities processing millions of tons of steel around the world.

"We need to solve the adjacent problem of accessing enough low-emissions hydrogen and power and their respective value chains—inputs that are needed for the manufacturing of decarbonised steel. 

“This illustrates what makes this work hard. We see this in cement, in plastics, in ammonia: the consistent theme of technology performance gaps, massive scaling needs and entwined linkages."

Is the energy transition still possible in time?

Despite these formidable challenges, there are reasons for optimism. 

Tiago says: "The average electric car being sold today can cover the needs of more than 70% of households and high-end models more than 90%. 

“There's still work to be done, but we're close there. 

“Another example is air-source heat pumps, which can serve the needs of over 95% of the human population no matter where they live."

For sustainability professionals and businesses navigating this complex landscape, the MGI research underscores the need for a strategic, system-wide approach. 

Mekala explains: "The more I work on this topic, the more I am fascinated by how — while we can often talk about individual technologies, sectors, companies or countries — at its core, what we are talking about is a system-wide transformation. 

“I go back to our metaphor: we are not replacing the bulb, we are rewiring an entire house."

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