The renewable energy transition is now well under way. According to McKinsey’s “Global Energy Perspective 2022” report, electric power, synthetic fuels, and hydrogen will represent 32 percent of the global energy mix by 2035 and 50 percent by 2050.
The energy sector has never been in a greater state of flux, as companies move to adapt to lower carbon expectations and a disrupted market landscape. Household name oil and gas producers have been building up renewable energy businesses, green energy companies have been scaling up, and sustainability-focused start-ups have emerged to provide innovative services in a fast-evolving transition to clean, renewable energy sources.
It is within this changing landscape that we introduce Energy Solutions by McKinsey, a team of data scientists and analysts whose leading global energy intelligence and market insights will help energy-sector organizations make well-informed strategic, tactical, and operational decisions.
With a focus on helping clients capture opportunities, manage risk, and improve performance, Energy Solutions brings together teams from our Electric Power & Natural Gas and Oil & Gas Practices, combining our knowledge to serve clients across the energy value chain.
Below, three Energy Solutions leaders talk about how the needs of clients are changing, why a new team approach was required to meet today’s challenges, and what the future looks like for the global energy transition.
David Helstrom, partner, Houston
Countries around the world are trying to solve the energy “trilemma”: making sure energy is accessible, affordable, and sustainable. Over the past several years, we’ve witnessed how challenging it can be to navigate the right path to solve this issue. It requires new ways of thinking, and companies throughout the global energy ecosystem are evolving rapidly to achieve this.
Power companies are ramping up investments in renewables, and oil and gas companies are re-evaluating portfolios, with many standing up independent renewable energy and low-carbon businesses in industries such as hydrogen and other sustainable fuels. Additionally, start-ups and businesses focused solely on green energy continue to pursue new alternatives and carbon-capture technologies.
As a result, the classic lines between power, oil, and gas sectors are blurring. Rather than keeping two different groups of experts focused on one sector or the other, McKinsey created Energy Solutions to form a single, fully integrated team to better serve our clients. These worlds are overlapping, and it gives us the opportunity to bring a consolidated set of market insights, models, and tools that span the entire energy spectrum.
Needless to say, this is an exciting time to be working in the energy space. There is so much innovation and passion around this important topic, and we remain focused on helping our clients find opportunities that will solve this complicated equation.
Luciano Di Fiori, partner, Houston
Oil and gas companies recognize that we’re reaching peak demand for legacy fuels, so they have been exploring other opportunities through the energy transition. It turns out that these companies have essential expertise when it comes to the new technologies and processes.
Take, for example, carbon capture and storage (CCS), which involves capturing carbon dioxide from industrial activity, then compressing, transporting, and storing it deep underground. It’s essentially the opposite of what oil and gas companies have been doing for decades: extracting fossil fuel from the ground and transporting it through networks. These organizations have the key capabilities and infrastructure already in place for carbon capture. Similarly, these same companies also have deep experience with hydrogen—especially, those who operate refining complexes, as hydrogen is used in the refining process.
It’s important to acknowledge that hydrocarbons will be part of our energy mix for at least the next 30 years. Whether we like it or not, the reality is that mankind will need hydrocarbons for our energy needs for many more decades. The challenge for us, then, is to help oil and gas clients decarbonize their activities, while also transitioning to other fuels, which allows for the continuation of supplying hydrocarbon-based fuels, but with far fewer emissions. It’s just as important that we support oil and gas companies on this journey.
Jesus Rodriguez Gonzalez, partner, Madrid
There has been more change in the power and electricity industries in the last ten years than in the previous 100 years before it. These used to be very static sectors, but have become much more dynamic, and the barriers to entry are much lower.
That is particularly true of renewable energy and energy commercialization, and we have seen a boom of new independent companies providing power through solar and wind, in addition to many oil and gas companies boldly entering this market.
We have been focused on accelerating this energy transition through our green business building capabilities and supporting established companies and new entrants alike in navigating this new landscape. With heightened competition, better customer services and efficient renewables projects are becoming key.
We are also becoming a platform for change beyond the energy sector by working with industrial clients on decarbonization journeys. This requires green energy—but how do you plan for it and execute that strategy?
It’s a very exciting time to be working in the power and gas sectors. We are involved in building some of the largest solar, wind, hydrogen, and biogas projects in the world. We are creating new champions of these technologies and helping current leaders shape their portfolios to the new reality. We are fortunate to be playing a role in truly changing the world.