Bridging the gaps: Setting the stage for an orderly energy-system transition

The Energy Transition

Long exposure, drone shot of cars moving in different directions at night, with triangle graphics on top

Global ambitions to reduce emissions aggressively have thrown into sharp relief large gaps between existing crucial technologies, infrastructure and investment—and the higher levels we’ll need in the immediate future.

Long exposure, drone shot of cars moving in different directions at night, with triangle graphics on top

The energy and mobility transitions are underway. In response to the dangers and disruptions posed by climate change, the world has made a great deal of progress in building consensus around long-term solutions and scaling up the innovative technologies that will help decarbonise our energy, industrial and transport systems. Many governments and institutions have agreed to the targets of the 2015 Paris Accord, which aim to keep global temperature increases well below 2°C above pre-industrial levels, and have committed to the ambitious goal of achieving net-zero emissions. There is a clear and shared sense of urgency. 

Governments, utilities and companies have made plans to shift toward 100% emissions-free energy systems. But establishing goals is, in some ways, the easy part. For there’s a significant gap between the world’s current emissions level and trajectory and its 2050 targets. And there’s an immense amount of work to be done to ensure an orderly transition to a new energy paradigm that’s both just and sustainable, and that accommodates and enables economic growth.

The path to reducing greenhouse gas (GHG) emissions lies largely in decarbonising the global energy system. The world currently consumes a staggering 624 exajoules of energy per year, equivalent to four times China’s annual energy consumption. This encompasses a wide range of uses, including electricity, heat, transport and activities such as the manufacturing of plastics and fertilizers using hydrocarbons. As economic development rapidly accelerates across Asia and Africa, millions of people each year are connecting to the energy system for the first time—acquiring their first vehicles, gaining access to lighting, taking their first aeroplane flights. Global demand for energy is expected to rise by up to 1% per year, the equivalent of the annual energy demand of Italy. By 2050, demand could be up to 20% higher than in 2021.

Energy consumption accounts for approximately 73% of total greenhouse gas emissions. Our energy systems are composed of molecules and electrons. Currently, about 80% of primary energy demand is met by molecules, the majority of which are supplied by hydrocarbons such as oil, gas and coal. The remaining 20% is supplied by electrons—i.e., the electricity sector. Already, 38% of electricity is created through technologies that don’t emit CO2, such as nuclear, hydropower, solar and wind.

Constructing an energy system that’s reliable, affordable, and cleaner and that can enable and respond to economic growth is challenging. Much of the research and rhetoric centres on the end state—where we’ll wind up in 30 years. But there’s been less focus on understanding the size of the gaps that need to be bridged in order to arrive there. Across the board, there are significant gaps between where we are today, the progress that will be made if all existing pledges are adhered to, the targets set by existing policy and the ultimate goal of reaching net zero by 2050.

The most notable and truly global gaps apparent in the coming decades are in power generation, transportation and distribution grids, storage, conversion, critical minerals, and funding. These gaps are closely intertwined. To make progress, leaders must identify and quantify the gaps, understand the levers that they can pull to accelerate the construction of the bridges, and engineer a strategy to span those gaps. And they must summon the collective will and marshal the necessary execution powers to make all the projections a reality.

Chapter two

1. Key gaps to bridge for reaching net zero

The generation gap

In recent years, backed by subsidy schemes, tax credits, and a falling levelised cost of energy, the installation of renewable electricity–generation capacity (especially solar and wind) has expanded tremendously. The growth on—and in—the ground and the water has typically surpassed market forecasts.

Globally, 1,282 gigawatts (GW) of renewable power capacity was added to the energy system between 2016 and 2021, and the International Energy Agency (IEA) projects that an additional 2,400 GW of renewable capacity will be installed between 2022 and 2027. However, if the world is to reach net zero by 2050, capacity will have to grow to more than 27,000 GW—an eightfold increase from the 2021 levels (see chart below). Building out renewables at a faster pace is necessary not just to decarbonise current levels of electricity consumption but also to ensure there are sufficient carbon-free electrons to help substitute for hydrocarbon molecules in areas of primary energy consumption, such as transport and domestic heating.


The grid gap

Generation is only the first section in the decarbonisation bridge. All the electricity generated by wind turbines floating offshore or solar panels planted in desert expanses needs to reach the end user. For supply to be connected efficiently to demand, the world needs a concomitant commitment of capital in transmission and distribution infrastructure. Expanding and strengthening the grid is a costly and time-consuming endeavour. Over the past decade, the world has invested an average of US$300 billion per year. According to the IEA, annual investments will need to rise to the range of US$560 billion to US$780 billion in the 2030s (see chart below).

Money alone doesn’t solve the problem, as challenges to grid expansion also include long permitting periods, technical complexities, and shortages of skilled labour and materials—which can help increase costs. Governments have an important role to play in placing policy and licensing regimes, reducing the time needed to approve and develop projects, and providing incentives for investment. In addition, with more decentralised and distributed energy production, and the potential for electricity to travel greater distances, effective system operation will become an increasingly important capability.


The storage gap

Renewable electricity tends to be intermittent—the sun doesn’t always shine, and the wind doesn’t always blow—while the demand for electricity is relatively constant and predictable. Hence, to have an orderly transition to a decarbonised grid, a significant amount of electricity storage capacity will be required, in the form of batteries or pumped hydropower schemes. Stored electricity, in addition to providing flexibility, can deliver ancillary grid services and help reduce the need for expensive transmission and distribution projects.

Significant investments in grid-scale battery storage have been made. In 2022, globally, 16 GW of grid-scale battery storage was added. According to the IEA, to get on track with the net-zero targets, which would require a 143-fold increase by 2050, annual additions must pick up significantly to an average of more than 80 GW per year over the 2022 to 2030 period (see chart below).


The conversion gap

All fossil fuels are composed of hydrocarbons: hydrogen and carbon. The uses of these traditional molecules are numerous: storage, generating electricity, heating, powering vehicles, and as a feedstock for economic staples such as fertiliser and plastic. And we’ll need vast quantities of these hydrocarbons for decades to come. It simply isn’t possible to electrify the world’s primary energy consumption. Aeroplanes are a long way from running on anything other than aviation fuel, to take one example. In fact, in its Stated Policies Scenario, the IEA projects traditional hydrocarbons will account for 60% of energy demand in 2050.

Almost 20% of CO2 emissions derive from four so-called “hard-to-abate” products that pose particular challenges to electrification: steel, cement, ammonia and plastic. In these realms, finding alternatives to hydrocarbons is difficult due to cost, as well as the scale and volumes of substitutions required. While it may seem counterintuitive, the players in the hydrocarbon industry possess the necessary capital, know-how, engineering prowess and scale to be critical enablers of the energy transition. As such, their involvement is necessary for an orderly transition to a sustainable energy system.

Technology, innovation and the surge in renewable electricity production present the potential to create decarbonised molecules. There are many possible routes. Electrolysers powered by renewable energy can create green hydrogen molecules, which in turn can produce green fertilisers or green ammonia. And we can make more productive use of captured CO2 in building materials.

Currently, converting electrons into molecules via electrolysis is expensive and lacks scale. The total global installed base of low-emission hydrogen electrolysers was only 1 GW at the end of 2022. But investment is ramping up. According to the IEA, the realisation of all the projects in the pipeline could lead to an installed electrolyser capacity of 134 GW to 240 GW by 2030. This indicates the exponential scale of the investment required. According to the IEA, reaching net zero by 2050 will require annual production of low-emission hydrogen via water electrolysis to rise from its very low current levels to 452 megatonnes (see chart below). Smaller amounts of low-emission hydrogen will be produced by other technologies.


The critical minerals gap

The global transition to net zero requires a massive deployment of renewable energy infrastructure, including solar panels, wind turbines, batteries and compressors, to name just a few components. However, this unprecedented demand for hardware has put significant pressure on the underlying supply chain, from mining and refining to the manufacturing of semi-finished and end products. (For more, see Mine 2023: The era of reinvention)

While existing and planned manufacturing capacity is projected to meet global demand, the supply of several raw minerals remains insufficient and is therefore deemed critical. These critical minerals, including lithium, cobalt, nickel, graphite, aluminium, copper, platinum group metals, and rare earth elements, are central to the manufacturing of electric vehicles and battery storage capacity. As a result, shortages of these minerals are likely to have a significant impact on the pace and scale of the energy transition. To stay on the path of net zero by 2050, the IEA projects that the world’s economy will require four times more critical mineral inputs in 2030 than those produced in 2021 (see chart below).


The funding gap

In 2022, an important milestone was reached. According to BloombergNEF (BNEF), investment in the energy transition reached parity with investment in hydrocarbons, both amounting to US$1.1 trillion. This is a remarkable achievement considering the surge in spending on oil and gas capacity due to energy security concerns in several regions. However, substantially larger investments are required to achieve the world’s energy transition goals, with estimates by the IEA and the Intergovernmental Panel on Climate Change (IPCC) ranging from US$4 trillion to US$6 trillion per year.

To meet these goals, BNEF suggests that the gap between the investments made and the investments necessary stood at US$1 trillion in 2022 and will soar to US$4 trillion by 2025. Between 2030 and 2050, the annual investment required will range from US$7.2 trillion to US$8.9 trillion (see chart below). By way of contrast, global GDP is projected to be US$106 trillion in 2023. The magnitude of this challenge underscores the significant role of the finance industry in supporting the transition to a sustainable energy future, and the need for policies that encourage investment.


Chapter two

2. Promising solutions for an orderly transition

Together, these gaps combine to inject a great deal of volatility into systems that crave stability. These gaps won’t—and can’t—all be bridged simultaneously and on precise schedules. Some will go more quickly, and others will go more slowly; entirely new gaps may emerge. And this will place pressure on existing systems, many of which are already stressed. Even small changes at the margins have the potential to create volatility in supplies and prices.

Any complex transition brings the prospect of turbulence, but the number of large gaps we have identified and the significant metaphorical distances that need to be bridged pose a serious challenge to a just and orderly transition. The existence of the technology and will to change doesn’t guarantee that things will go smoothly. That’s why it’s important to think deliberately and carefully about how we approach and manage this change.

While not all the solutions are readily apparent, we have substantial tools, materials and blueprints at our disposal to start constructing the bridge. We list the most important ones.

Reducing our thirst for energy

The urgent task is to decouple economic growth and productive activity from energy production. The best way to do that is to double down on efficiency—to produce the same amount, or more, of goods and services while using less energy. This is especially important for the developed world, which accounts for a disproportionate share of global energy consumption. While North America and Europe comprise 15% of the global population, these regions account for 31% of the world’s energy consumption. Developing countries need to have the freedom to grow their energy consumption levels to ensure well-being and upgrade living standards.

There are two primary levers for reducing energy consumption: technical and behavioural. Technical levers involve comprehensively increasing energy-efficiency measures, such as optimising processes, installing more efficient appliances and rolling out more effective residential insulation. On the behaviour front, leaders must ask stakeholders to alter their habits, whether that is switching the lights off, commuting by bike instead of driving, or taking the train instead of the aeroplane. A combination of effective economic incentives and clear communication can help motivate behaviour. According to the IEA, behavioural changes could account for 4% of the required cumulative emissions reductions through 2050.

Pushing electrification

The world will be vastly scaling up its supply of carbon-free electricity in the coming decades. What’s needed is an equivalent scaling up of the demand for carbon-free electricity by electrifying products and services that used to rely on hydrocarbons. This effort encompasses a range of actions, including switching from gas-fired boilers to heat pumps; driving electric vehicles instead of cars and trucks with combustion engines; running ships on fuel cells instead of diesel; and electrifying lawnmowers, forklifts and construction equipment. Substantial momentum is building. In 2022, heat pump sales surpassed those of new boilers and furnaces in the EU. And globally, electric vehicle sales reached a market share of 15% of all new passenger vehicles in 2022, up from just 5% in 2020.

Decarbonising hydrocarbon consumption

Wherever possible, it’s pivotal to replace hydrocarbons with green alternatives. Transitioning to bio-based feedstocks, such as substituting organic-based packaging for plastics or relying less on kerosene and more on sustainable aviation fuel (SAF), can play a role. (For more, see ‘Sustainable aviation fuels cost less than you think’)

Companies are taking steps to create supply chains for hard-to-abate sectors. Sweden-based H2 Green Steel is building a green steel plant that will have the capacity to produce 5 megatonnes of steel annually by 2030, equivalent to 1% of global annual steel production. It has already struck agreements to supply automakers with steel.

Managing stock and flow

Central banks are responsible for monetary stability and set policies independent of short-term political concerns or objectives; these include encouraging full employment and maintaining price stability. It’s clear that we need a sort of central bank, but for the orderly transition, with the mandate of ensuring the stability of energy supply while encouraging progress towards net-zero targets.

This central bank for the energy system could be developed within existing multilateral institutions and would focus on supporting countries to pivot from policy ambitions to execution. Such an approach could help align country-level execution within regional or global developments, ensuring that the cost of carbon within the system aligned with the overall policy objectives that have been set, and providing insight on the stock and flow of energy sources to ensure and maintain stability.

Chapter two

3. A global blueprint

Bridging these gaps is the great challenge, imperative and opportunity of our time. To make progress and ensure an orderly transition, we need a coordinated, holistic and realistic road map. An energy road map is built on a set of complementary design principles:

Focus on detailed and concrete steps to reach the goal. Bridges are built one slab at a time. This agenda is both broad and deep and will span decades. It will become increasingly important to separate short-term incentives from the longer-term goal.

Develop a truly global scope. Countries need to align national efforts with regional and global developments. The degree of interdependence during the transition will increase, with policies and the speed of execution in one country directly affecting others through energy pricing and availability.

Strike the right balance between affordability, security of supply and sustainability. As a matter of simple maths, hydrocarbons will be around for the coming decades. In a net-zero-by-2050 scenario, the IEA projects we will still be consuming oil and gas in 2050. At that time, roughly 18% of primary energy demand will be supplied by hydrocarbon molecules. Underinvestment in these vital sources of energy is likely to lead to supply and demand mismatches. Sudden price swings and higher prices have the potential to introduce instability into all our systems. During the transition, it will be critical to balance the competing objectives of affordability, security of supply and making progress towards decarbonisation targets.

Take supply chain dynamics into account when defining solutions. The energy transition requires a massive, coordinated, systemic change—the capacity for manufacturing electric vehicles, the supply of critical minerals, the production of electricity, and the build-out of charging capacity must all grow rapidly at the same time. This transformation will inevitably place stress on supply chains. As they decide on investments, leaders must consider the broader supply chain dynamics. These include the long lead time to construct new mines, the necessity of relying on solutions that use abundantly available resources—especially for batteries—and focusing on regionally manufactured hardware that can lower the emissions associated with transport.

Prioritise solutions based on impact to reduce GHG emissions versus costs. The energy transition is driven by the need to combat climate change and curb GHG emissions. Many technological solutions exist to lower GHG emissions. But, since all these solutions can’t be implemented simultaneously and instantaneously, we need to prioritise based on impact and costs, while maintaining investments in solutions with long lead times, such as grid infrastructure. And we have to understand and appreciate the significant trade-offs. Nuclear power, for example, has the ability to provide baseload power with no emissions but requires an enormous amount of capital, time and significant policy support.

Chapter two

4. Building the bridge

Building a bridge brings together many disciplines and professionals: architects and engineers, environmentalists and financiers, steelworkers and crane operators. In the same mode, bridging the gaps that stand between us and a decarbonised future will require an immense amount of collaboration, faith and mutual goodwill. Successful execution will require constructing a huge coalition of public, private, and financial sector leaders, as well as engaging broader society and key industries. This starts with clearly explaining the impact of climate change and the shared challenges we face recognizing the role of energy in modern life and economies, involving people in developing concrete road maps for their regions and countries, and ensuring they reap the benefits.

In the face of the global net-zero challenge, we must remember that we all share a common goal: a sustainable future for our planet.

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Reid Morrison

Reid Morrison is the global energy advisory leader. Based in Houston, he is a principal with PwC US.



Paul Nillesen

Paul Nillesen is the energy, utilities and resources leader for PwC Netherlands. Based in Amsterdam, he is a partner with PwC Netherlands.

+31 (0)61 003 87 14


Jeroen van Hoof

Jeroen van Hoof is the global energy, utilities and resources leader. Based in Rotterdam, he is a partner with PwC Netherlands.



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