The transition is affordable
The world will spend an ever-smaller share of GDP on energy, allowing for additional investment to further speed up the transition
The acid test of the likelihood of our forecast is its affordability. The future energy system we forecast is costlier than today’s: annual global energy expenditure will increase by 22% from USD 4.5trn in 2017 to USD 5.5trn in 2050. However, in relative terms, it becomes much more affordable. Measured against world GDP growing by more than 130% to 2050, the energy expenditure increase is very small.
As the figure above illustrates, the share of world GDP devoted to energy is cut in half, from 3.6% in 2017, to 1.9% by mid-century. The backstory here is fall in spending on fossil fuels, and the rise of low-cost, efficient electrification that leads to operating savings which more than offset ongoing, substantial high capital expenditure (CAPEX) on grids.
With this reasoning, we conclude that the forecast energy transition indeed is affordable. Measured against world GDP growing by more than 130% to 2050, the energy expenditures increase is very small.
The fossil upstream share of total expenditure, currently at 68%, will almost halve to 38% by mid-century. Oil CAPEX will decline by more than 10 times from its peak in the 2020s, and with less production, operating expenditure (OPEX) will also decline by a quarter. Gas OPEX will also fall by a quarter, while gas CAPEX levels fall much less sharply than oil CAPEX.
By contrast, we forecast annual grid expenditures to more than double to USD 1.7trn, thus representing one third of global energy expenditures. Spending on DC grids will be the fastest growth area, while an increase in installations underground and under water/sea will raise cost levels.
A notable watershed occurs in 2034 when non-fossil CAPEX overtakes fossil CAPEX.
The rapid renewable buildup and grid expansion is dependent on a successful shift in investments from fossil to renewable sources.