Renewables are swiftly jockeying forward to become the “new baseload” of the world’s energy system, forecast to make up half of the power mix by 2030 and 85% by mid-century, according to McKinsey & Company’s latest annual sector report.

But the consultancy, in its latest Global Energy Perspectives report, cautions that while the energy transition continues to gear up, with oil demand expected to peak as early as 2025, current government commitments are on track to lead to global heating exceeding 1.7°C by 2100, significantly higher than the targets set by the Paris Agreement.

Renewable energy’s share of the worldwide power generation mix is foreseen climbing from 29% to 60% in the next 15 years in McKinsey’s ‘Further Acceleration’ scenarios, one of five forecasts outlined in the report.

Solar and onshore wind, fuelled by declining costs, are projected to make up 43% and 26% of generation respectively by 2050 under the most progressive scenario, while offshore wind could remain constrained to less than 7% of the world total due to ongoing permitting and policy hurdles.

“Rapid technological developments and supply chain optimisation have collectively halved the cost of solar, while wind costs have also fallen by almost one-third,” said McKinsey senior partner Christer Tryggestad. “As a result, 61% of new renewable capacity installation is already priced lower than fossil fuel alternatives.”

Thermal generation is still expected to have “an important role” as a grid flexibility provider through to 2040, said the report, with gas expected to meet “substantial shares” of baseload power in the next decade “in regions with favourable fuel costs”.

“In the past few years, we have certainly seen the energy transition pick up pace. Every year we’ve published this report, peak oil demand has moved closer. Under our middle scenario assumptions, oil demand could even peak in the next three to five years, primarily driven by electric vehicle (EV) adoption,” said Tryggestad.

“However, even if all countries with net zero commitments deliver on their aspirations, global warming is still expected to reach 1.7°C. To keep the 1.5°C [Paris Agreement] pathway in sight, even more ambitious acceleration is needed.”

“Going forward, the global energy mix is projected to shift towards low-carbon solutions, with a particularly strong role for power, hydrogen and synfuels,” he said, with the report foreseeing worldwide hydrogen demand growing 4-6 times by 2050, driven by road transport, maritime, and aviation sector demand, and green synfuels by then accounting for 10% of total energy consumption.

The McKinsey report authors noted that global energy markets were facing “an unprecedented array of uncertainties”, including the impacts of Russia’s invasion of Ukraine, but that “nonetheless, the long-term transition to low-carbon energy systems continues to see strong momentum and, in several respects, acceleration”.

“Leading up to COP26 [meeting in Glasgow, Scotland, in 2021], a total of 64 countries, covering more than 89% of global emissions, pledged or legislated to achieve net zero in the coming decades. To keep up with these net-zero ambitions, the global energy system may need to significantly accelerate its transformation.”

Power consumption globally is expected to treble by 2050 as electrification expands and living standards rise, said the report authors, flagging the transportation sector as likeliest to see “the fastest transition to electricity” as EVs reach cost-parity with internal combustion engine cars as early as the mid-2020s.

Flexible assets – chiefly gas plants, batteries, and hydrogen electrolysers – will be core to future grid stability and decarbonisation, according to the McKinsey forecasts, with “both traditional and new storage capacity” totalling some 24TW by 2050 needed to ensure system security.

“Technologies like CCUS [carbon capture, usage and storage] and nuclear will likely see additional growth if renewables build-out remains constrained,” said the authors, spotlighting that the CCUS sector could expand “more than 100-fold from an almost non-existent footprint today, with investment opportunities exceeding LNG [liquid natural gas] markets today.”