World Energy Transitions Outlook

INTRODUCTION

IRENA’s World Energy Transitions Outlook provides the contours of an energy pathway and a
concise set of actions fully aligned with the findings of the Intergovernmental Panel on Climate
Change and the needs of a just, inclusive and orderly transition. This preview – prepared for the Berlin Energy Transition Dialogue in March 2021 – provides highlights from IRENA’s latest analysis and outlines immediate priority actions and investments and areas where accelerated improvement is necessary. The analysis also considers transformative technologies such as green hydrogen and sustainable bioenergy, which will play an essential role over the mid and long term.

ENERGY TRANSITION FOR 1.5°C

Holding the line at 1.5°C means reaching net zero by 2050 and ensuring a rapid decline in emissions beginning now. Countries around the world need to accelerate their efforts toward the energy transition without delay.Despite clear evidence of human-caused climate change, widespread support for the Paris Agreement, and the prevalence of clean, economical and sustainable energy options, energyrelated carbon dioxide (CO2) emissions increased 1.3% annually, on average, over the period 2014 to 2019.4 While last year, 2020, was an outlier due to the pandemic, as emissions declined 7%,5 a rebound looks very likely, at least in the short term.Meanwhile, in the last few years the energy sector has begun to change in promising ways, enabled by supporting policy and innovations in technologies and systems. Renewable power technologies are dominating the global market for new generation capacity. Following increasing renewables deployments in 2019 (around 176 gigawatts [GW] added globally6), indications are that 2020 was a record year for wind and solar photovoltaic (PV) markets, with current market forecasts suggesting that about 71 GW7 and 115 GW8 are expected to be added, respectively. New records for lowpriced solar PV were achieved (less than 2 US cents per kilowatt hour [kWh]). The electrification of transport is showing signs of disruptive transition – the global sales of electric cars grew by 43% compared to 2019, to reach 3.2 million units, accounting for 4.2% of global new car sales.9 Key enabling technologies, such as battery packs and cells for mobility applications, saw rapid cost reductions from an average USD 181/kWh in 2018 to USD 137/kWh in 202010 (the lowest-cost applications were under USD 100/kWh).

1 For the 1.5°C climate target, global CO2 emissions need to drop to net zero by 2050
Annual net CO2 emissions 2021–2050 – GtCO2/yr, Baseline Energy Scenario (BES),
Planned Energy Scenario (PES) and 1.5°C Scenario (1.5-S)
The World Energy Transitions Outlook identifies six main
components of the CO2 emissions abatement:
Six components of the energy transition strategy
CO2 emissions abatement options between the 1.5°C Scenario and PES

Renewable energy plays a key role in the decarbonisation effort. Over 90% of the solutions in 2050 involve renewable energy through direct supply, electrification, energy efficiency, green hydrogen and BECCS. Fossil-based CCS has a limited role to play, and the contribution of nuclear remains at the same levels as today.

The portfolio of technologies needed to decarbonise the world energy system mostly exists today, but innovative solutions are considered as well.

IRENA’s 1.5°C Scenario considers today’s proven technologies as well as innovative technologies that are still under development but which that could play a significant role by 2050. For example, in the case of renewable power generation technologies, offshore renewable energy such as floating offshore wind and emerging ocean energy technologies could support sustainable longterm development and drive a vibrant blue economy. On the end use side, innovation extends from electrified transport modes (e.g. long range electric trucks) and e-fuels (e.g. green hydrogen-based ammonia and methanol) to alternative production processes in manufacturing industry (e.g. direct reduced iron production using green hydrogen) as well as green buildings (e.g. smart buildings for energy management along with net zero buildings). Speculative solutions still at an early stage of development have been excluded.

Electricity becomes the main energy carrier in energy consumption by 2050
Breakdown of total final energy consumption (TFEC) by energy carrier in
2018 and 2050 (EJ) in the 1.5°C Scenario (1.5-S)

By 2050, electricity would be the main energy carrier with over 50% (direct) share of total final energy use – up from 21% today. By 2050, 90% of total electricity needs would be supplied by renewables followed by 6% from natural gas and the remaining from nuclear.

Renewables, electrification and energy efficiency are the main pillars of the energy transition.

The most important synergy in the global energy transition is the combination of the increasing use of low-cost renewable power technologies and the wider adoption of electricity to power end-use applications in transport and heat. Electrification allows for the use of carbon-free electricity in place of fossil fuels in end-use applications, and significantly improves the overall efficiency of the energy service supply. Electric vehicles, for instance, are more efficient than internal combustion engines. Hydropower generation, as well, is more efficient than natural gas generation. This is important as reductions in energy intensity need to be accelerated.

The global energy supply must become more efficient and more renewable
TPES, renewable and non-renewable share for 2018, PES and the
1.5°C Scenario (1.5-S) (EJ/yr)

The share of renewable energy in primary supply must grow from 14% in 2018 to 74% in 2050 in the 1.5°C Scenario. This requires an eight-fold increase in annual growth rate, from 0.25 percentage points (pp) in recent years to 2 pp. Primary supply stabilises during this period as a consequence of increased energy efficiency and the growth of renewables.

Electricity generation must expand three-fold by 2050, with renewables providing 90% of the total supply.

In the 1.5°C Scenario, rapid electrification of end-use applications along with the rise of green hydrogen production drive increased power demand. By 2050, power generation triples compared to today’s level, and renewables supply 90% of total electricity by 2050, up from 25% in 2018. Natural gas* (around 6%) and nuclear (around 4%) constitute the remainder. Wind and solar PV dominates the power generation mix, supplying 63% of total electricity needs by 2050; other mature renewable technologies (e.g. hydro, bio-energy, geothermal and concentrated solar power) and emerging technologies (e.g. ocean energy) also play important roles to decarbonise the world’s electricity supply. This rise is being accelerated by declining costs: three-quarters of onshore wind and 40% of utility-scale solar PV commissioned in 2019 will produce during their lifetime electricity cheaper than any fossil-fuel alternatives, while three-quarters to four-fifths of the onshore wind and utility-scale solar PV commissioned in 2020 from auction or tenders had prices lower than the cheapest new fossil fuel–fired option.

Renewables will dominate the power generation mix
Electricity generation and capacity by source, 2018, 2050 (TWh/yr and GW/yr)
in the 1.5°C Scenario

Electricity generation grows three-fold from 26380 terawatt hours (TWh) in 2018 to close to 78700 TWh in 2050. The share of renewables would grow to 90% in 2050 from 25% in 2018. Following a sharp decrease in coal generation over the current decade, by 2040 coal generation would be a quarter of today’s level and eventually would be phased out by 2050. The remaining 10% of total power generation in 2050 would be supplied by natural gas (around 6%) and nuclear (around 4%). Notably, variable renewable sources like wind and solar
would grow to 63% of all generation in 2050, compared to 7% in 2018.

Power systems will need to become much more flexible as the variable renewable energy (VRE) share on average would reach 63% of global power generation.

Flexibility in power systems is a key enabler for integrating high shares of VRE – the backbone
of the electricity system of the future. By 2030, the VRE share in total power generation would
reach 42%. By 2050, 73% of the installed capacity and 63% of all power generation would come from variable resources (solar PV and wind), up from 15% of the installed capacity and 7% of power generation globally today. Such a level is manageable with current technologies leveraged by further innovations.

Emerging innovations for the integration of variable renewable energy sources
Enabling technologies, market design, business models and system operation

IRENA has identified 30 innovations for the integration of wind and solar PV in power systems, clustered in four dimensions. Innovations across two or more dimensions need to be combined to form an innovative solution. Since there is no “one-size-fits-all” solution, these need to be tailored to the specific power system characteristics of each country.

Electricity will be a key energy carrier, exceeding 50% of final energy use by 2050.

By 2050, electricity will become by far the most important energy carrier. The direct electrification share in final energy consumption (which includes direct use of electricity but excludes indirect uses such as e-fuels) would reach 30% by 2030 and exceed 50% by 2050, up from just above 21% today. The use of green hydrogen and green-hydrogen-based carriers, such as ammonia and methanol, as fuels, would reach almost 2% in 2030 and 7% in 2050 from negligible levels today. In total, direct and indirect electrification would reach 58% of final demand.

Electricity is the central energy carrier in future energy systems
TFEC split by direct electricity and the use of green hydrogen and its
derivative fuels, in 2018, PES/2050 and 1.5-S/2050 (EJ/yr)

The buildings sector would see the highest direct electrification rates, reaching 73% compared to 32% today. A rise would also be observed in the industry sector, where the direct electrification rate would be 35% by 2050, up from 26% today (including indirect electrification, the rate of electrification would approach 40% by 2050). For decarbonising some heat applications, the total number of heat pumps would rise by close to nine-fold, exceeding 180 million by 2030 and close to 400 million by 2050 compared to around 20 million installed today.Electricity dominates final energy consumption either directly or indirectly, in the form of hydrogen and other e-fuels such as e-ammonia and e-methanol. Around 58% of final energy consumption in 2050 is electricity (direct), green hydrogen and its derivatives.

Electricity consumption more than doubles by 2050
Electricity consumption by end-use sector, 2018, 2030 and 2050 (TWh/yr)
in the 1.5°C Scenario

Electricity demand grows over two-fold in between 2018 and 2050. The use of electricity in industry and buildings doubles. In transport it grows from nearly zero to over 12700 TWh.

Hydrogen and its derivatives will account for 12% of final energy use by 2050.

By 2050, 30% of electricity use will be dedicated to green hydrogen production and hydrogen
and its derivatives such as e-ammonia and e-methanol. Hydrogen and its derivatives together will account for around 12% of total final energy use. To produce this, almost 5 000 GW of hydrogen electrolyser capacity will be needed by 2050, up from just 0.3 GW today.

In the next decade the cost of green hydrogen will continue to fall
Hydrogen production cost

Green hydrogen can be produced at costs competitive with blue hydrogen by 2030, using low-cost renewable electricity, i.e., around USD 20/megawatt hour (MWh). If rapid scale-up occurs
in the next decade, the cost of green hydrogen will continue to fall below USD 1.5/kilogramme (kg). Hydrogen will offer a solution to industry and transport needs that are hard to meet through direct electrification, mitigating close to 12% and 26% of CO2 emissions, respectively, in the 1.5°C Scenario compared to the PES. Today, around 120 metric tonnes (Mt) (14 EJ) of hydrogen are produced annually but almost all of this comes from fossil fuels or from electricity generated by fossil fuels, with a high carbon footprint – less than 1% is green hydrogen. As electrolyser costs fall, combined with further reductions in renewable electricity costs, green hydrogen will be less expensive than the estimated cost of blue hydrogen in many locations within the next 5 to 15 years.22 In the 1.5°C Scenario, by 2050, there will be a demand for 613 Mt (74 EJ) of hydrogen, two-thirds of which will be green hydrogen. The electricity demand to produce hydrogen will reach close to 21 000 TWh by 2050, almost the level of global electricity consumption today. This requires significant scale-up of electrolysers’ manufacturing and deployment. Around 160 GW of electrolysers need to be installed
annually on average to 2050. The installation rate will start growing from a few gigawatts added per annum in the coming years and eventually ramp up from 2030 onwards, exceeding 400 GW per 8x annum by 2050.

Electrification and green hydrogen offer a solution for end-use sectors
CO2 emissions abatement options between the 1.5°C Scenario and PES in
industry, transport and buildings sectors.

In transport, 67% of emission reductions come from electrification (direct) and hydrogen. In industry, hydrogen and electricity combined contribute 27% of mitigation needs. In buildings, the key solution is electrification (direct and indirect), contributing close to half of the reduction needed, followed by energy efficiency.

Integrated innovation for the decarbonisation of the global energy system
Innovation across various dimensions of the energy sector.

Innovation will help drive the energy transition process and decarbonise the energy sector. An integrated innovation approach across different dimensions is needed. As reducing the cost of low-carbon technologies is an overriding priority for innovation, a suite of emerging technology solutions will significantly shape the energy sector’s decarbonisation. Driven by innovation and economies of scale, renewable power generation sources are economically
attractive. Special attention would be needed for the expansion of emerging technologies such as green hydrogen.

CO2 removal technologies, CCS, and related measures will be required for the remaining energy and process-related emissions.

Some emissions will exist by 2050 from the remaining fossil fuel use and from some industrial
processes. There is thus a need for both CCS technologies that reduce emissions released to the atmosphere and for CO2 removal measures and technologies that, combined with long-term storage, can remove CO2 from the atmosphere, resulting in negative emissions. CO2 removal measures and technologies include reforestation and BECCS* and also, potentially, direct CCS and some other approaches that are currently experimental.

The role of bioenergy with carbon capture and storage (BECCS)
CO2 removals, GtCO2 cumulative 2021–2050, in the 1.5°C Scenario

Bioenergy combined with CCS (BECCS) would play a key role in power plants, co-generation plants and in industry specifically for the cement and chemical sectors, to bring negative emissions in line with a very constrained carbon budget. BECCS would contribute over 52% of the carbon captured over the period to 2050. Besides BECCS, the role of CCS remains limited mainly to CO2 process emissions in cement and iron and steel (where limited alternative
technologies exist beyond the accelerated adoption of renewables, energy efficiency, relocation of steel production with direct reduced iron and material improvements as part of the circular economy considered in the 1.5-S) and blue hydrogen production.

Fossil fuel use could decline by more than 75% by 2050, based on the rapid transition measures starting now.

By 2050 in the 1.5°C Scenario, fossil fuel production declines by more than 75% with total fossil
fuel consumption continuously declining from 2021 onwards. Fossil fuels still have roles to play, mainly in power and to an extent in industry, providing 19% of the primary energy supply in 2050 Oil and coal decline fastest while natural gas peaks around 2025 and decline thereafter. Natural gas is the largest remaining source of fossil fuel in 2050 (70% of total fossil fuel supply), at around 52% of today’s level. Natural gas production amounts to 2.2 trillion cubic metres (or 79 EJ) in 2050, down from around 4.2 trillion cubic meters (153 EJ) today. Around 70% of the natural gas is consumed in power/heat plants and blue hydrogen production. The other relevant use is in industry. The global production of oil declines to just above 11 million barrels per day in 2050, roughly 85% lower than today. This oil is largely used in industry for petrochemicals (non-energy uses, close to 40%), and in aviation and shipping. Coal production declines more drastically, from around 5 750 million tonnes in 2018 (160 EJ) to almost 240 million tonnes per year (7 EJ) in 2050. Specifically, in the power sector, coal generation declines significantly to 55% by 2030, 75% by 2040 compared to current levels and by 2050 has been phased out. While coal is largely used in industry, it is mostly for steel (by 2050, 5% of total steel production coupled with CCS) and to a certain extent in chemicals production.

The declining importance of fossil fuels
Fossil fuel primary supply, 2018 to 2050 (EJ) in the 1.5°C Scenario

With accelerated uptake of renewables, fossil fuel use would drop significantly from almost 487 EJ in 2018 to 112 EJ in 2050. This implies that only a quarter of today’s fossil fuel demand remains by 2050. Oil demand would decline significantly by around 85% by 2050 compared to the 2018 level. Coal as a fuel for power generation would be phased out by 2050 and the remaining coal demand would be largely only in industry, mostly for steel production (coupled with CCS) and to a certain extent in chemicals production. Natural gas would be the largest source of fossil fuel in 2050 with a share in total primary energy supply dropping to 13% from 26% in 2018. In 2050, natural gas would primarily be used in power plants, industrial processes
and for blue hydrogen production (coupled with CCS).

Emerging consensus on the role of renewables and electrification
Shares of renewables in total primary energy in 2018 and 2050 in various energy scenarios

The energy scenarios examined show different visions of the future.There is a significant difference between achieving the 1.5°C target versus net zero emissions. All energy scenarios propose higher renewable energy shares in primary supply compared to 2018, with nearly half of them showing lower primary supply, which indicates greater energy efficiency. All result in lower emissions.

Global energy-related CO2 emissions in 2050
CO2 emissions versus electrification rates in various energy scenarios

Despite the differences among the energy scenarios, there is a clear consensus on the important role that electrification powered by renewable energy sources has in the decarbonisation of the energy system. With a share of 51% of direct electrification and 58% if green hydrogen and its derivates are included, coupled with 90% of renewables in the power sector in 2050, IRENA’s 1.5°C Scenario shows a higher electrification rate than the other scenarios.

Energy investments need to shift to low-carbon energy transition solutions and increase 30% overall.

Government plans in place today call for investing almost USD 98 trillion in energy systems over the coming three decades. The economic stimulus packages announced so far would direct USD 4.6 trillion into sectors that have a large and lasting impact on carbon emissions, namely in agriculture, industry, waste, energy and transport, of which less than USD 1.8 trillion is green.23 To ensure a sustainable, climate-safe and more resilient future, significant investments need to flow into an energy system that prioritises renewables, electrification, efficiency and associated energy infrastructure. At the same time, those investments must not lead to lock-in effects that are not compatible with the 1.5°C Scenario. IRENA’s 1.5°C Scenario could be achieved with an additional USD 33 trillion over the planned investments, for a total investment of USD 131 trillion over the period to 2050 as shown in Figure 16. Over 80% (USD 116 trillion for the period to 2050 or around USD 4 trillion per year on average as shown in Table 1) needs to be invested in energy transition technologies (excluding fossil fuels and nuclear) such as renewables, energy efficiency, end-use electrification, power grids, flexibility innovation (hydrogen) and carbon removal measures.

New investment priorities: renewables, efficiency and electrification along
with infrastructure
Cumulative investments 2021–2050 (USD trillion) in the 1.5°C Scenario
and the PES

A climate-safe future calls for the scale-up (additional USD 1.1 trillion per year in
the 1.5°C pathway compared to the PES), and redirection of investments from fossil
fuels towards energy transition technologies – renewables, energy efficiency and
electrification of heat and transport applications. High upfront investment is crucial
mainly to enable accelerated deployment of key renewable energy technologies
such as wind and solar PV in the power sector, massive scale-up of electrification of
transport and heat applications along with expansion of infrastructure followed
by large-scale green hydrogen projects.

Energy transition investment needs to be scaled up significantly in the
coming decades
Energy transition annual average investments, USD billion per year, 1.5°C Scenario
Energy transition investment needs to be scaled up significantly in the
coming decades
Energy transition annual average investments, USD billion per year, 1.5°C Scenario

Financial markets and investors are already shifting their attention towards the opportunity of new energy technologies.

Capital is already moving to take advantage of the most attractive investment opportunities at this time of transition. Financial markets are anticipating peak demand for fossil fuels and rapid growth for new energy technologies, and allocating capital accordingly. They have been de-rating one fossil fuel sector after another as peak demand for fossil fuel technologies has spread from European electricity to coal to cars to oil services. The de-rating of fossil fuel sectors has been going on for some time, with the share of the fossil-fuel-heavy energy sector in the US S&P 500 index falling, for example, from 13% a decade ago to below 3% today. In 2020, investors got enthusiastic about the renewable opportunity. Money flooded into renewable energy stocks; the S&P clean energy index was up by 138%, while the fossil-fuel-heavy S&P energy index was down by 37%.*

New energy vs. old energy: S&P Global Clean Energy and Energy Indices
from January 2020

Investors and financial markets are anticipating the energy transition and already allocating capital away from fossil fuels and towards energy transition technologies, such as renewables. For example, in 2020, the S&P Clean Energy Index of clean energy stocks was up by 138%, as compared to the fossil fuel-heavy S&P Energy Index which was down by 37%.

The time for action is now, while there’s a chance to capitalise on the momentum of investment and spending in the wake of the pandemic.

Countries are fighting the damages of the COVID-19 pandemic with huge sums spent on bailouts and recovery measures. The pathway towards the goals of the 1.5°C Scenario starts now, and public investment must be channelled away from fossil fuels and towards the energy transition, including enabling infrastructure for the efficient use of renewable power (e.g. smart grids, cross-country interconnectors), heat (e.g. district heating and cooling networks) and transport (e.g. charging stations for electric vehicles). At the same time, energy industry bailouts and financial support to carbon-intensive companies should be made conditional on measurable climate action. With comprehensive, supportive and clear policy frameworks, public investment should also be leveraged to mobilise energy transition-related investment. Important government actions include the provision of risk-mitigation instruments (e.g. guarantees, currency hedging instruments and liquidity reserve facilities) to attract and de-risk private capital; creation of pipelines of bankable renewable energy projects; establishment of sustainability requirements for investors (e.g. climate-risk analysis and disclosure); provision of reviewed investment restrictions and sustainability mandates for institutional investors; and adoption of standards for green bonds in line with global climate objectives.

The energy transitions at all levels depend on setting ambitious targets as part of a broad and comprehensive policy framework.

To further the energy transition and attract the investments needed in the long and short term,
ambitious climate and clean energy targets are essential at both national and sub-national levels. In addition to the laws passed or proposed around net zero emissions in many jurisdictions, ambitions expressed in the NDCs must be raised beyond the power sector, covering all end uses.

Enabling policy framework for a just energy transition

A broad set of policy measures is required to align the short-term recovery with longer-term transition, climate and socio-economic development objectives.

IRENA’s socio-economic footprint analysis provides an integrated systemic approach
to evaluate the outcomes of energy transition pathways.

The 1.5°C Scenario outlined in this preview points to a more sustainable energy system and lays the foundation for new patterns of socio-economic development. The energy transition cannot be considered in isolation, separate from the socio-economic system in which it is deployed. Understanding the socio-economic footprint of the energy transition is essential to optimising the outcome. If well understood and planned, structural socio-economic changes will improve the outcome of the transition and support its pace. A holistic assessment can inform energy system planning, economic policy making and other policies necessary to ensure a just and inclusive energy transition at global, regional and national levels.

Measuring the socio-economic footprint of transition roadmaps

Socio-economic systems will play a fundamental role in deploying fast transitions needed to stabilise global warming at 1.5°C. Social and economic policy, based on collaborative frameworks, can address the fairness and justice dimensions, both within and between countries.

The energy transition has the potential to deliver comprehensive socio-economic benefits, in terms of jobs and overall welfare, with the most direct impact on the energy sector.

The transition opens jobs in renewable energy, energy efficiency, electrification and green fuels. Globally, employment in the 1.5°C Scenario follows a higher growth path than under currently planned pathways. Overall welfare gains are even higher because they comprise improved health, less pollution and better incomes. To fully reap these potential benefits, distributional aspects need to be addressed and included in policy action from the very onset.

Employment intensities of transition-related technologies

Investing in energy transition technologies creates up to three times more jobs than do fossil fuels, for each million dollars of spending.

Energy transitions require far-reaching international co-operation to reduce regional disparities and ensure a successful global outcome.

The geopolitics of energy will change profoundly, with implications for international rule making and co-operation among suppliers and buyers of minerals and resources essential for the energy transition. Part of the challenge is establishing a commercially viable market for green hydrogen and therefore developing rules governing global markets. Prices need to reflect the benefits of energy transition technologies and reflect the damages from fossil fuels.

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