The energy transition is facing significant hurdles despite growing momentum in renewable technology. Global electricity demand surged by 4.3% in 2024, driven by record temperatures, industrial growth, transport electrification, and data centers. This surge contributed to an overall energy demand increase of 2.2% last year, compared to an annual average of 1.3% between 2013 and 2023. These factors, alongside geopolitical shocks and economic hurdles, are complicating efforts to decarbonize, as policymakers prioritize energy security and affordability.
The transition requires substantial funding, with the Energy Transitions Commission estimating $3.5 trillion in average annual capital investment needed up to 2050 to achieve a net-zero economy. Only $500 billion of this is expected to come from reduced fossil fuel funding, a goal that appears increasingly unlikely. Despite an overall increase in subsidies and support to record highs in 2024, sentiment has been dampened by a more pro-fossil fuel stance from the new US administration. This has led some financial institutions, such as Barclays, HSBC, JPMorgan, and Bank of America, to withdraw from the Net-Zero Banking Alliance, with exiting members accounting for nearly 40% of the alliance's total assets.
Investment in grid infrastructure is critical, as highlighted by a spring blackout in Europe where an aging grid, with 40% over 40 years old, failed to cope with a power surge. Modernized and interconnected grids are essential to integrate variable renewable sources effectively. However, dedicated green finance remains small-scale, reaching only $8 trillion in 2024, a fraction of the $250 trillion global credit and equity markets. While renewables generation is projected to grow by 2.7 times between 2022 and 2030, increasing renewables' share from 30% to 46%, this is still below the three-fold growth necessary to meet net-zero targets agreed upon at COP28. The supply of key raw materials also remains a significant problem that market forces alone cannot resolve, according to IEA chief Fatih Birol.
Technological advancements like improved battery storage are crucial for smoothing out intermittent renewable generation and providing reliable power, offering a faster solution compared to the lengthy approval processes for transmission lines. Investment in AI infrastructure, including Google's planned $75 billion capital expenditure in 2025 and Apple's $600 billion US-based expenditure over four years for data centers, further underscores the urgent need to address shortfalls in electricity supply. While higher electricity usage is not inherently negative if sourced renewably and efficiently, fossil fuels still account for 60% of generation and 36% of energy-related emissions. Private sector involvement and mechanisms like clearer mandates for green banks, more supportive government policies, and favorable financing terms are essential to attract necessary capital flows.
