Many clean energy projects touted as signs of progress on decarbonization remain unfinalized, creating a “reality gap” between the perceived uptake of new technology and the actual capital invested, say analysts at McKinsey & Company.
Their new report aims “to shed light on the current status of the energy transition and provide a rigorous, fact-based assessment.” Across several key technologies, clean hydrogen and carbon capture utilization and storage (CCUS) were found to have the widest gap between the number of projects planned and those really taking shape.
The study focuses on clean energy development in the United States and Europe, comparing the status of various clean technology projects against their deployment goals to “assess the alignment between ambitious climate targets and actual progress on the ground.”
Many projects have not reached their final investment decisions, the analysts say, and are at risk of being cancelled or scaled back. For example, industry targets have clean hydrogen production increasing about 25-fold in Europe and 20-fold in the U.S. over the next five years. Announced plans are projected to meet about 90% of those targets in Europe and about 70% in the U.S., but only around 11% and 15%, respectively, have reached final investment decisions.
Recent evidence has also suggested clean hydrogen may not be as sustainable as claimed, with scientists pointing to leakage of the gas as a climate pollutant itself.
Similarly, CCUS will need to grow to 60 times its current capacity in Europe and the U.S. to meet its intended scale. But the analysts found that the vast majority of projects were still at risk of not materializing.
Scientists have also raised doubts about the technology’s efficacy versus high costs, and about whether it can actually be scaled in time to contribute to decarbonization targets in the fight against climate change.
Other technologies show smaller reality gaps. But McKinsey says even the more successful ones—like wind, solar, and electric vehicles—can expect waning interest.
“With this clear view of current progress in hand, now is the time for stakeholders across the energy value chain to revisit decarbonization plans and assess if these plans are still sufficient to achieve their climate goals,” the analysts say.
The report pinpoints three major issues that “threaten the necessary deployment of capital” to keep the technologies on track:
• Weak business cases with insufficient economic returns and policy predictability for developers;
• Limited manufacturing capacity that hinders the cost-competitiveness of some technologies;
• Uncertainty about some technologies’ effectiveness due to long, unfinished testing processes.
The study covered multiple key technologies that make up the bulk of the world’s decarbonization potential, including onshore and offshore wind, solar photovoltaics, clean hydrogen, sustainable fuels, CCUS, EVs, and heat pumps. It left out some technologies—like battery energy storage systems—which are in better shape and “already in vast supply, with very healthy pipelines, and numerous players not only announcing projects but committing to them.”
Energy efficiency, low-carbon thermal generation, and nuclear technologies were also excluded because they face fragmented markets and regulatory limitations.
