McKinsey Report: Energy Transition Enters a Phase of Growing Uncertainty
McKinsey’s Global Energy Perspective 2026 offers a blunt reading of where the world’s energy system stands. Rather than a clean handover from fossil fuels to clean power, the report describes an expansion in which nearly every source of energy is growing at once. Demand is rising, AI is adding a new and unpredictable load, and geopolitics is reshaping the economics of supply.
Demand Is Growing Across Every Energy Source
Global energy demand rose 2.7% in 2025, according to the report, and oil, gas, coal and renewables all expanded together. The energy system, McKinsey notes, grew across every major energy carrier instead of moving away from any of them.
The firm’s Continued Momentum baseline has fossil fuel demand still climbing through the late 2020s, from 295 exajoules (EJ) in 2025 to 317 EJ in 2030, before growth slows in the early 2030s. Oil demand is projected to begin easing around 2030. Gas keeps rising beyond 2032, and coal grows in absolute terms through the 2030s, with a peak projected around 2040.
Clean energy is also moving quickly. Low-carbon investment exceeded fossil fuel investment for the second year running in 2025, and renewable capacity grew faster than in any previous year. The takeaway for sustainability leaders is that decarbonisation now has to be planned alongside rising energy access, industrial growth and the sheer scale of future demand.
Known Unknowns Behind the New Scenarios
In the report’s joint foreword, Humayun Tai, Senior Partner and Global Leader of McKinsey’s Energy and Materials Practice, and Diego Hernandez Diaz, Leader of the Global Energy Perspective and Partner, say this edition takes stock of the system and explores a wider set of known unknowns. Their questions include what happens if fossil fuel demand keeps growing to meet rising consumption and data centre buildout, what if geopolitical fragmentation intensifies and global GDP slows, and what if low-carbon technology costs fall fast enough for clean energy to keep scaling without sustained decarbonisation policy. The new scenarios, they write, are meant to widen the aperture to capture these possibilities.
Infrastructure Emerges as a Key Constraint
McKinsey identifies infrastructure readiness as one of the main limits on how fast the transition can move. As electrification grows, transmission, distribution, storage and firm capacity matter more.
Utility-scale solar and onshore wind are now the cheapest sources of unfirmed new electricity generation in most major markets on a raw levelised-cost basis. But the report stresses that cheaper generation does not automatically mean a cheaper system overall.
Global investment in electricity transmission and distribution is projected to rise from US$443 billion in 2025 to US$970 billion a year by 2050, an average annual growth rate of 3.2%. Transmission is expected to grow faster, at a 4.2% compound annual rate between 2025 and 2050, compared with 1.1% for distribution, as grids connect renewable generation, serve data centres and strengthen interconnection.
Tai said that with geopolitical disruption and security and affordability concerns affecting energy systems worldwide, business leaders face significant operational and strategic complexity, even as staying on course for decarbonisation goals remains crucial. The report accordingly treats affordability as a system-wide issue spanning generation, grids, storage, dispatchable capacity, flexibility, market design and cost recovery, not generation alone.
AI: A New Variable in Energy Demand
McKinsey describes AI as potentially the most consequential new variable in energy demand forecasting since liquefied natural gas became a globally traded commodity.
Data centres are the fastest-growing load segment in OECD power markets. Under Continued Momentum, data centre electricity demand grows at a 24% compound annual rate to 2030, then slows to 5% a year between 2030 and 2040. The report cautions that the outlook beyond 2030 is highly uncertain, because the economic returns from AI are hard to pin down and gains in computing efficiency could change future electricity needs.
AI also appears on the supply side. McKinsey points to possible productivity gains in grid forecasting, power dispatch, predictive maintenance, engineering, project development and manufacturing. That creates a dual challenge: AI can raise electricity consumption through expanding compute demand while potentially lowering the cost and complexity of delivering that electricity.
Hernandez Diaz described the period ahead as one of genuine uncertainty. AI, geopolitical fragmentation and technology cost breakthroughs are all visible today, he said, but their effects could unfold in very different ways over the next decade. The aim, he added, is to help executives recognise the market signals that may justify a change of direction while building portfolios that hold up across a range of possible futures.
Energy Security and Decarbonisation Are Now Linked
The report argues that the transition is creating new dependencies, so sustainability and energy security can no longer be handled as separate strategic questions.
China accounts for roughly 80% of global solar module production and 75% of battery cell manufacturing capacity. Around 90% of the rare earth elements used in permanent magnets for wind turbines are refined there, and China processes more than 70% of lithium, cobalt, graphite and rare earths. As economies try to reduce reliance on imported fossil fuels, that concentration is a potential vulnerability.
McKinsey also cites the 2026 Strait of Hormuz crisis as a measure of how severe energy disruption can be. The episode temporarily took close to 25% of seaborne oil trade and 19% of LNG supply out of the market, with vessel transits through the strait falling by more than 90%.
Against that backdrop, McKinsey’s five scenarios show how different mixes of demand growth, technology costs, infrastructure readiness and geopolitics could lead to very different energy systems through 2050. Trade openness, supply-chain integration and infrastructure readiness emerge as key factors in whether low-carbon technologies can scale fast enough.
What This Means for Energy Leaders?
The report’s central message is that the question is no longer only whether energy demand will grow, but how that growth will be supplied reliably, affordably and with lower emissions. For executives, that points to portfolios built to withstand multiple outcomes, while watching for the signals that would justify changing course.
