• McKinsey sees slowing growth in primary energy demand

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      Patrick Lavery

      Combustion Industry News Editor

Global consulting company McKinsey has released a summary of its research findings into the decoupling of economic growth from primary energy demand, giving predictions for the future. While the article is aimed at leaders of businesses, the predictions and reasoning behind them, as well as some of the background, are more generally interesting. Energy consumption has been, since the beginning of the industrial revolution, one of the most accurate predictors of economic growth – as the article puts it, “to a remarkable degree, wealth creation has depended on a society’s proficiency at burning things.” Since 2000, global primary energy demand growth has had a median of 3.7% per year, driven largely by China, and with the world’s population projected to increase to up to 10 billion by 2050, coupled with rising living standards, the question of future energy demand is a complex one. McKinsey finds that four factors will reduce the dependence of economic growth on primary energy demand – a decline in energy intensity as economies such as India and China move to more services for their growth; improved energy efficiency; further electrification; and the growing use of renewables. Here, definitions are important – McKinsey seems not to consider solar and wind energy as being part of primary energy demand, contrary to standard convention. Instead, it makes the strange claim that for renewables power generation, there is a “near total absence of any conversion loss”, which does not accord to convention, although the article is right that it matters relatively little, given wind is plentiful and the sun will burn effectively indefinitely for humankind. Another point of contention is the use of the levelised cost of electricity, rather than the value-added levelised cost as the International Energy Agency is moving to, to predict the growth of renewables. These possible shortcomings aside, the article predicts only a 14% addition increase in primary energy demand (including, now, renewables) by 2050 compared to 2016, with a peak in fossil fuel consumption in the late 2020s. This is markedly low – a rise in the population from the current ~7.5 billion to 10 billion, along with average global economic growth of 1.5% per year without gains in efficiencies would suggest a ~112% rise in energy demand by 2050.  Renewables are to generate half of all electricity across the world by 2035, according to the report, which is higher, as an example, than the 31% that the US Energy Information Administration predicted in 2017 for the year 2040. Given that somewhat confused nature of the McKinsey article, one gets the feeling the predictions will not be amongst the company’s finest, even though elements of them broadly fit in with some predictions of other organisations.