BCG: If We Want to Save the Earth, We Must Triple the Speed of the Green Energy Transition

The global share of energy from renewable sources and other low-carbon energy solutions in total electricity supply must increase to 50 to 70 percent by 2050 to limit global warming to 1.5 degrees Celsius compared to pre-industrial levels. Today, the share of renewable sources globally is only about 12 percent. This is an energy transition that should be about three times faster than all previous transitions, such as from wood to coal or from coal to oil and gas, which are currently the dominant sources of energy, reveals new research from the Boston Consulting Group titled “Blueprint for Energy Transition.”

It is expected that global electricity consumption will double by 2050 due to industrial development and the fact that today around 775 million people still lack access to electricity, which is nearly 10 percent of the world’s population.

At the same time, BCG’s research shows that there is a high correlation between prosperity and energy consumption. Specifically, it is estimated that developed countries consume about 20 megawatt-hours of primary energy per capita annually. To meet the increased demand for energy while simultaneously preserving the Earth from further warming, societies must dramatically accelerate the substitution of fossil fuels with new low-carbon energy sources.

There are five measures that will help societies achieve energy transition goals:

• increasing energy efficiency
• electrification of end products, such as electrification of transport and the use of heat pumps for heating
• decarbonization of electricity production
• using gas in cases where it is difficult to abandon fossil fuels
• utilizing carbon capture and storage systems (carbon capture and storage)

– Most of the technologies needed for our societies to become carbon neutral are already available to us. We need policies, proven pilot projects, as well as the financial and other capacities necessary for the largest and most important transformation of our industrial age, emphasized Maurice Berns, CEO and senior partner, who leads BCG’s Center for Energy Impact.

Tectonic Change in Energy

The business models of energy systems will fundamentally change due to the energy transition. Energy resources will no longer be extracted from the Earth and stored for further processing like coal, oil, and gas, but will be directly converted into electricity that must be consumed at any given moment. This means that initial investments will be significantly higher, but with much lower operational costs than before.

The need to consume electricity at the moment of production will increase price volatility as energy storage remains challenging regardless of plans to increase the share of electricity and hydrogen in the energy mix. Today in Europe and the U.S., there are large capacities for storing electricity for only one to two hours of average electricity consumption, which is very short. Therefore, a significant restructuring of the entire electricity market will be necessary to reduce cyclicality, mitigate increased volatility, and uncertainty in energy markets.

– The situation in Croatia can be viewed from two perspectives, says Tomislav Čorak, CEO and partner at BCG responsible for decarbonization of the oil sector in Central and Eastern Europe.

– The first perspective is the energy profile of Croatia itself, which is very favorable due to investments in hydropower plants that occurred before independence and are now considered green energy sources. According to data from 2021 available on Eurostat, Croatia has over 30 percent of its energy produced from renewable sources, which is significantly higher than the EU average of 22 percent. Not only do these hydropower plants raise the average production of electricity from renewable sources, but they also provide energy storage in the accumulation lakes of regulatory hydropower plants on the coast. Thus, these hydropower plants can perfectly serve to balance production from other renewable sources such as solar and wind power plants. If we add that Croatia also had gas and even nuclear energy from the Krško nuclear power plant in its energy mix, we can be satisfied with the energy system we have.

However, since we are not alone, there comes the second perspective that leaves the impression that we have not utilized all opportunities to position ourselves as a leader in the energy transition in the region we are in. Namely, countries in our region are crying out for renewable sources. Bosnia and Herzegovina, Serbia, Kosovo, and partly Montenegro and North Macedonia have each based their energy mix on coal-fired power plants supplied from nearby mines, which now must be abandoned. This leaves a significant gap in their energy mixes and a great opportunity for investments in renewable sources. Given that we have the knowledge, we had the opportunity long ago to position ourselves as a leader in the energy transition in the region and thereby strengthen our economy. But the question is whether we missed the train to monetize our electricity know-how, now enhanced by EU membership, in the countries of the region, which would be a historic opportunity for the economic development of our society, concludes Čorak.

Significant Gap in Investments

To achieve the set goals by 2030, BCG estimates that $37 trillion (trillion – one thousand billion) will need to be invested globally in the energy transition. Today, around $19 trillion is secured globally for investments in the energy transition, which means an additional $18 trillion needs to be secured. In addition to new capacities for solar and wind power plants, investments are also needed in the electricity grid to ensure that the grid can accept the electricity produced from renewable sources.

Oil and gas need to be rapidly phased out of the energy mix, but with selective investments that will be necessary to ensure the stability of energy supply. In the majority of scenarios for net carbon neutrality by 2030, it is estimated that renewable sources should replace 50 to 80 percent of the share of fossil fuels compared to levels from 2021. Today’s production capacities will not be sufficient to meet the demand expected in 2030 and beyond. Therefore, the focus during the transition should be on investments in affordable and as low-carbon energy sources as possible.

BCG further concludes that a significant acceleration of the green energy transition is crucial for preserving a planet that is livable today and in the future. As in any transformation process, the challenges of the green transition should not be underestimated. However, along with this come enormous opportunities that we as a society and economy can also utilize in Croatia, as long-term green energy systems will resolve today’s energy trilemma of energy sustainability, availability, and security.