What is Energy Transition?

What is the Energy Transition?

The energy transition refers to the global shift from fossil fuel-based energy systems—coal, oil, and natural gas—toward low-carbon and renewable sources including solar, wind, nuclear, and hydrogen. It encompasses not just electricity generation but the transformation of transportation, heating, industrial processes, and the broader economic infrastructure built around fossil fuel combustion over the past two centuries.

Why It Matters

The energy transition is the defining economic transformation of the 21st century. Global investment in clean energy reached $1.8 trillion in 2024, surpassing fossil fuel investment for the first time. Solar photovoltaic capacity additions exceeded 400 GW in 2024 alone—more than the total installed nuclear capacity worldwide. Wind, solar, and batteries are now the cheapest sources of new electricity generation in markets covering over 90% of global power demand.

This is not a distant prospect—it is reshaping industries today. The European automotive sector is retooling around electric vehicles, with the EU banning new internal combustion engine sales from 2035. Oil majors are diversifying into renewable power, hydrogen, and carbon management. Utilities that dominated with coal fleets a decade ago now derive the majority of their generation from gas and renewables. Companies across every sector face strategic questions about energy procurement, asset investment, and supply chain configuration driven by this transition.

The pace is accelerating but uneven. China installed more solar capacity in 2023 than the entire world did in 2022. India's renewable auction prices have fallen below thermal generation costs. Meanwhile, many developing economies remain locked into fossil fuel infrastructure by financing constraints, institutional capacity limitations, and energy access priorities that favor dispatchable generation. This unevenness creates both risks (stranded assets, carbon leakage) and opportunities (leapfrog deployment, first-mover advantage in clean technology supply chains).

The transition also creates workforce and community challenges that demand proactive management. Coal-dependent regions face economic disruption. Oil and gas workers need retraining pathways. Just transition frameworks—ensuring that the costs and benefits of decarbonization are equitably distributed—are increasingly central to climate policy design and corporate social license.

How It Works / Key Components

The electricity sector leads the transition because renewable alternatives are commercially mature and cost-competitive. Solar and wind provide variable generation managed through grid-scale battery storage (costs down 90% since 2010), demand response, grid interconnection, and dispatchable clean firm power (nuclear, geothermal, hydrogen-capable gas turbines). Many grids are targeting 80-100% clean electricity by 2035-2040.

Electrification extends clean electricity into sectors historically powered by direct fossil fuel combustion. Electric vehicles replace internal combustion engines. Heat pumps replace gas furnaces and boilers. Electric arc furnaces replace blast furnaces in steel production. Each conversion shifts energy demand from fossil fuels to electricity, amplifying the impact of grid decarbonization.

Hard-to-electrify sectors require alternative pathways. Aviation, shipping, high-temperature industrial heat, and long-duration energy storage will likely rely on clean fuels—green hydrogen, sustainable aviation fuel, ammonia, and synthetic hydrocarbons—produced using renewable energy. These sectors represent the "last mile" of the energy transition and require sustained R&D investment and policy support.

Enabling infrastructure—transmission lines, EV charging networks, hydrogen pipelines, port electrification, grid modernization—represents a multi-trillion-dollar investment requirement that both constrains and defines transition timelines. Permitting reform, supply chain development for critical minerals, and workforce training are as important to transition speed as technology cost curves.

Council Fire's Approach

Council Fire helps organizations develop energy transition strategies that align operational planning with the pace and direction of the broader transformation. We assess client energy portfolios, identify transition risks and opportunities across operations and supply chains, model scenarios under various policy and technology trajectories, and develop actionable roadmaps that position clients for competitive advantage in a decarbonizing economy.

Frequently Asked Questions

How fast is the energy transition happening?

Faster than most forecasts predicted even five years ago, but slower than climate science demands. Renewable electricity capacity is growing at 15-20% annually. Electric vehicle sales exceeded 18% of global new car sales in 2024. However, global fossil fuel consumption has not yet peaked in absolute terms—growth in developing economies continues to offset reductions in advanced economies. Most credible analyses suggest fossil fuel demand peaks before 2030, but the decline trajectory will depend on policy choices made in this decade.

What does the energy transition mean for fossil fuel companies?

Fossil fuel companies face a strategic inflection point. Demand for their core products will decline over the coming decades—the question is how fast. Some majors (BP, TotalEnergies, Equinor) are diversifying aggressively into renewables, hydrogen, and carbon management. Others (ExxonMobil, Saudi Aramco) are doubling down on oil and gas production while investing in CCS. The optimal strategy depends on asset portfolio, geographic exposure, and management's assessment of transition speed.

Will the energy transition increase electricity costs?

In most markets, the transition is reducing the marginal cost of electricity generation—solar and wind are now the cheapest generation sources ever built. However, total system costs include grid integration, storage, transmission upgrades, and backup capacity, which can increase overall costs during the transition period. Long-term, the combination of zero-fuel-cost renewables, declining storage prices, and reduced fossil fuel price volatility is expected to deliver lower and more stable electricity costs in most regions.