The latest Energy Transition Outlook (ETO) 2025 by Wood Mackenzie reveals that despite record renewable growth, the world is still heading toward a 2.6°C temperature rise. Systemic constraints, capital allocation challenges, and the booming energy needs of artificial intelligence are reshaping global decarbonization paths.
ETO 2025 and the challenges of a maturing energy transition
The global energy transition is entering a more mature yet challenging phase. According to the Energy Transition Outlook (ETO 2025) by Wood Mackenzie, the sector faces difficult trade-offs between scale, integration, investment, and geopolitics. Despite strong renewable momentum, these structural barriers are slowing global decarbonization, keeping the world on course for a 2.6°C temperature rise above pre-industrial levels.
Unlike the UN’s Emission Gap Report, ETO 2025 offers an integrated and data-driven view of energy and natural resource markets. Yet its conclusions are far from optimistic.
A complex, multi-fuel energy system
“In Wood Mackenzie, we foresee an expansion toward a new energy system where fossil fuels will remain the foundation of supply for decades to come,” analysts state in ETO 2025. “They will be integrated with low-carbon fuels that gain market share and play a critical role in meeting global energy demand. This evolving system, powered by multiple fuels and technologies, will become increasingly interconnected and complex.”
The report projects that in 2025, around 750 GW of new capacity will be added from solar, wind, and batteries, nine times more than fossil fuel additions. But, as ETO 2025 emphasizes, building a resilient and decarbonized energy system requires more than capacity expansion. It demands market reform, modernized grids, and greater flexibility. Above all, energy systems must break from their silos and embrace interconnection across sectors and energy carriers.
Artificial intelligence and rising energy demand
A central chapter of ETO 2025 focuses on the energy implications of artificial intelligence. The AI boom is putting unprecedented strain on global power markets. Today, data centers and AI infrastructure already account for about 250 GW of power demand and roughly 700 TWh of electricity consumption, more than all electric vehicles currently in operation.
If this growth continues, AI-related energy demand could reach 3,500 TWh annually by mid-century, matching the combined current consumption of India and the Middle East. Such pressure risks triggering grid shortages and higher tariffs, potentially delaying corporate clean energy targets for 2030.
Paradoxically, ETO 2025 notes that AI could also become part of the solution, accelerating the design of next-generation materials and energy systems through advanced simulation and optimization.
The electric future of global energy
One clear message stands out: the future is electric. As ETO 2025 explains, rising electrification, economic growth, electrolytic hydrogen, and the expansion of data centers will push electricity’s share far higher.
In the “Net Zero” scenario, built on full system reorganization and unprecedented capital mobilization, electricity will grow from 20% of total energy use today to over 50% by 2050. Variable renewables will climb from 20% to 68% of generation, while fossil fuels will remain essential for backup capacity. Mature economies pursuing Net Zero will rely on zero-carbon infrastructure, with advanced nuclear and geothermal providing dispatchable power.
“The financial challenge is enormous,” Wood Mackenzie concludes. “A 2°C target is achievable only if net-zero emissions are reached around 2060. To scale low-carbon technologies, from renewables and nuclear to hydrogen and carbon capture, annual public and private investment must rise 30% above current levels, averaging $4.3 trillion by 2060. This means lifting energy investment from 2.4% to 3.5% of global GDP within the next decade, a difficult path for many economies.”
