Three key reasons why the world is falling behind on its renewable energy targets: report

Deployment of renewable energy technologies is falling behind what is needed to reach global targets as investors hesitate to commit the necessary capital, threatening hundreds of gigawatts of vital renewable energy capacity.

And while there remains significant support for renewable energy across major regions like Europe and the United States, the near-term pipeline remains at risk, with many projects yet to reach final investment decision (FID), increasing the risk of project cancellation.

These are the headline findings from a new analysis from global management consulting firm McKinsey & Company which analysed the energy transition landscape including the uptake of key clean energy technologies and investment decisions.

McKinsey determined that there were three key issues threatening the necessary deployment of capital, starting with a weak business case for clean energy due to uncertain economic returns and a lack of policy certainty for developers.

Many technologies “are increasingly but not yet cost-competitive for consumers,” serving as a second roadblock to capital development, “given the lack of at-scale manufacturing capacity or learning rate driven by deployment.” Meanwhile, several technologies deemed necessary to the long-term energy transition have yet to be scaled up to a point that inspires confidence in investors.

These issues threatening investment have worked to stall deployment levels, resulting in a number of announced projects not yet reaching FID, and other projects with longer lead times – such as offshore wind – “quickly reaching the stage at which capacity that has reached FID will only come online after 2030.”

Even as national renewable energy commitments continue to increase, financial and political uncertainty threaten existing announced pipelines – pipelines which are already behind where they are needed to be.

“Indeed, decarbonisation technology projects have historically had a high fall-through rate, with only a small percentage of announced projects reaching FID, and an even smaller numbers of projects actually being realized,” write McKinsey’s analysts.

“Our analysis shows that many planned projects for key decarbonisation technologies in the European Union and the United States are falling short of announced targets, some significantly so.”

These shortfalls vary by both technology and region, but even the most stable of technologies – solar PV and onshore and offshore wind – are yet to get on track with 2030 targets, and “short-term deceleration is threatening the existing pipeline further”.

For example, even though solar PV has experienced significant growth in both Europe and the United States since the signing of the Paris climate agreement in 2015 – adding 180GW and 120GW of capacity respectively – both countries’ solar pipelines are not on track to meet 2030 capacity targets.

Similarly, onshore and offshore wind capacity remains behind where it needs to be, with around 94GW needed in the United States and approximately 100GW in Europe.

As deployment of these more mature technologies slow, so too has momentum in the deployment of other decarbonising technologies such as heat pumps and electric vehicles.

“Since the Paris Agreement, the adoption of EVs and heat pumps has surged in both the European Union and United States; however, particularly for EVs, this momentum has slowed precisely at the time when acceleration is needed, requiring action to put EVs back on track to meet targets,” write McKinsey.

To meet its target of 30 million electric vehicles by 2030, the European Union needs to add almost twice as many as it currently has on the road over the next five years, with a similar scale up necessary across the Pond in the United States to meet its target of 26 million EVs by 2030.

Investment in newer technologies – such as carbon capture, utilization, and storage (CCUS), green and blue hydrogen, and sustainable fuels – remain largely untested at scale and, unsurprisingly, have the lowest levels of financial commitment.

Despite relatively impressive progress across the board, more is needed. Concluding their analysis, McKinsey warns that “Europe and the United States risk missing important 2030 climate targets across critical technologies.

“The interdependent nature of these technologies means that delays could have cascading effects, hindering the development and successful deployment of subsequent innovations and putting 2050 net-zero goals at risk.

“Nevertheless, there is still a window of opportunity for governments and companies to deliver the growth needed to meet net-zero ambitions. To do so, reevaluating existing strategies in the light of changing global conditions may be necessary. Many current decarbonisation strategies assumed a different economic and policy landscape than the one that exists today.

“With this clear view of current progress in hand, now is the time for stakeholders across the energy value chain to revisit decarbonisation plans and assess if these plans are still sufficient to achieve their climate goals.”