Investments and affordability
The economics of the energy transition is a critical piece of the puzzle: significant investments will be needed in the coming decades, but they must be made with affordability in mind. Fortunately, these capital investments will likely result in an energy system that costs less overall to operate as society transitions away from a fuel-intensive system (such as oil for vehicles and natural gas and coal for power). Nevertheless, making capital as efficient as possible will require action. Additional measures will also likely be required to mitigate costs, particularly for low-income customers who are disproportionately affected by rising energy costs. 1. The energy transition will require increased capital investment The energy transition will require energy companies to effectively manage significant infrastructure investment. McKinsey analysis found that the US power sector may need more than $500 billion in additional capital invest ment between 2020 and 2030 to build and upgrade generation, transmission, and distribution in line with the Achieved Commitments scenario. That represents a 40 percent increase compared with the Current Trajectory. 1 - The incremental investment needed will vary by state. For example, in the case of distribution grid infrastructure, states with quicker adoption of electric vehicles (EVs) will need more distribution spend than those with slower adoption. Also, while significant distribution spend is required in the Current Trajectory, much of that investment becomes even more critical
lead to a dramatically more expensive pathway in the future, as shown by the Delayed Trajectory scenario. Of course, parallel progress of continued innovation and deployment will likely also be needed to enable a more orderly and less onerous energy transition as costs come down (see “Action area 6: Accelerate technological innovation to ensure timely deployment of new clean technologies”). Technologies in earlier stages than solar and onshore wind, including hydrogen and offshore wind, are forecast to begin ramping up in this decade. Acting early to plan, pilot, and demonstrate these and other technologies could inflect the cost curves for their larger-scale deployment in the 2030s and beyond. 2. Beyond 2050, a more orderly energy transition could lower overall energy system costs Historically, ongoing fuel costs have made up the bulk of the spend in the energy sector. By contrast, through 2030, almost 75 percent of energy-sector transition spending will go toward capital invest ments under the Achieved Commitments scenario, such as to deploy more renew able-energy facilities and boost elec tric-grid capacity. By 2050, the power system enabled by those investments would require only half as much expendi ture on primary fuels as today’s fossil fuel–based system would under the Achieved Commitments scenario. - - - Customer-side transitions show similar results. For example, the Department of Energy’s Office of Science estimates that a battery electric vehicle reaches -
for the energy transition. For example, many customers may not want to buy an EV if they think the grid is too unreliable for them to charge it when they need to. In the long term, delay and inaction will ultimately require far more investment than the Achieved Commitments scenario. While meeting the US government’s commitments would be costly, inaction could cost significantly more, both in economic terms and in the effects of climate change on livelihoods. 2 In addition, waiting to act until 2030, and then seeking to achieve the same cumulative net emissions by 2050, will likely be significantly more expensive than acting today. For example, investment for generation alone could increase by almost 40 percent by 2050 if the United States continued on its current trajectory and then attempted to make up ground starting in 2030. Much of the additional cost would come from technologies to remove carbon from the air to achieve the same cumulative emissions as the Achieved Commitments scenario. These “negative emission” technologies are still precommercial, making them a high-risk option. While some advocate for waiting for tech nology costs to come down before scaling investment, solar and onshore wind can already be deployed cost-effectively today; they make up approximately 75 percent of new generation capacity forecast in the Achieved Commitments scenario. Despite near-term supply chain challenges that bottleneck deployment today, not deploy ing renewables in the coming years would - -
1 This analysis does not incorporate impacts of the Inflation Reduction Act (IRA) of 2022. Under the IRA, the federal government supports these investments with tax credits, grants, and other policy instruments that might be funded through the bill instead of being recovered directly by energy users. 2 Climate risk and response: Physical hazards and socioeconomic impacts , McKinsey, January 2020.
Accelerating the journey to net zero
17
Made with FlippingBook Online newsletter maker