Global investment in electricity grids must rise from roughly USD 0.5 trillion annually in 2025 to about USD 1 trillion per year through 2035 if the world is to remain on a 1.5°C-compatible pathway.
That figure, outlined in a new report from the International Renewable Energy Agency, underscores a growing reality in energy transition planning: renewable deployment alone is no longer the defining constraint. Grid infrastructure, electrification rates, storage capacity, and system flexibility are increasingly becoming the determining factors shaping whether fossil fuel demand can decline at the required speed.
In its report, Transitioning Away from Fossil Fuels: A Roadmap Powered by Renewables, Electrification and Grid Enhancement, IRENA argues that the next phase of the energy transition will depend less on adding generation capacity and more on redesigning entire energy systems around electrification and network expansion.
The report arrives at a time when renewable energy deployment continues to accelerate but structural weaknesses in power systems are becoming increasingly visible. Renewable additions reached 692 GW in 2025, including around 510 GW of solar PV and 159 GW of wind capacity. Yet deployment remains heavily concentrated geographically, with China, the United States, and the European Union accounting for nearly 80% of installed renewable capacity.
At the same time, energy efficiency improvements remain significantly below required levels. Global energy intensity improved by only around 1% annually in 2023 and 2024, far from the 4% annual target associated with the COP28 UAE Consensus. According to IRENA, annual improvements of at least 5% are now required through 2030 to compensate for lost momentum.
The agency’s central argument is that electrification now represents the primary mechanism for structurally reducing fossil fuel demand across transport, buildings, and industry. Under IRENA’s revised 1.5°C scenario, electricity would account for 35% of global final energy consumption by 2035 and more than 50% by 2050, compared with approximately 23% today.
This transition, however, depends on simultaneous expansion of renewable generation, transmission infrastructure, storage systems, and demand-side flexibility. IRENA repeatedly emphasizes that electrification without grid modernization risks simply shifting system instability from fuel markets to electricity networks.
The scale of that challenge is substantial. Around 2,500 GW of renewable, wind, solar, and storage projects are currently waiting in global grid connection queues, according to the report. Grid expansion timelines continue to lag far behind renewable project development cycles, creating what IRENA describes as a structural mismatch between clean generation growth and network readiness.
The report identifies grids as the emerging bottleneck of the global energy transition. Without accelerated transmission and distribution investment, the agency warns of rising curtailment, congestion, reliability issues, and higher system costs.
Storage deployment presents a similar imbalance between current momentum and future requirements. Global installed storage capacity stood at 416 GW in 2025 but would need to increase to 2,530 GW by 2035 and nearly 6,900 GW by 2050 under IRENA’s pathway. Battery economics continue improving rapidly, with battery storage costs falling 93% since 2010 to roughly USD 192/kWh in 2024. Yet the agency argues that investment growth still falls short of what is needed to support large-scale electrification.
The report also reflects a broader shift in transition policy thinking. Earlier phases of the energy transition focused predominantly on supply-side renewable deployment targets. IRENA now frames demand-side transformation as equally important. Electrification of buildings, transport, and industrial heat is increasingly positioned as the central driver of long-term fossil fuel decline.
Sectoral projections in the report illustrate the uneven pace of this transition. Electrification in buildings is expected to rise from roughly 36% today to more than 75% by 2050, driven by heat pumps, electric appliances, and growing cooling demand. Industry electrification is projected to exceed 40% by mid-century, while transport electrification rises from just 1% today to more than 45% by 2050.
Still, IRENA does not present electrification as universally applicable. Hard-to-abate sectors such as aviation, shipping, steel, and cement are expected to retain some fossil fuel dependency longer than other sectors. The report therefore positions sustainable fuels, including hydrogen derivatives and biofuels, as complementary rather than competing transition pathways.
This distinction is important because it highlights an emerging tension within global transition planning. While electrification is increasingly treated as a “no-regret” strategy by policy makers, the report acknowledges that regional differences in resource availability, industrial structure, grid maturity, and investment capacity will produce uneven electrification outcomes.
Advanced economies are expected to electrify more rapidly due to mature infrastructure and higher electricity access. In parts of Africa and Southeast Asia, however, electrification rates may remain below 30% for longer periods because of infrastructure limitations and broader development priorities.
That regional divergence also complicates financing. IRENA estimates cumulative grid investment requirements could reach USD 29 trillion by 2050. Much of the required infrastructure expansion must occur in developing economies where financing costs remain higher and institutional capacity often weaker. The report repeatedly stresses the need for concessional finance, de-risking mechanisms, and international cooperation to avoid widening transition inequalities.
The geopolitical context further complicates implementation. IRENA notes that rising electricity demand from industrialization, urbanization, digital infrastructure, and data centers is occurring amid supply chain volatility, energy security concerns, and intensifying geopolitical fragmentation. Those pressures are reshaping national energy strategies, sometimes reinforcing short-term fossil fuel investments even as governments formally support long-term decarbonization goals.
The report ultimately frames the transition away from fossil fuels not as a single technology shift but as a system-wide infrastructure transformation. Renewable generation remains central, but increasingly insufficient on its own. The next decade, according to IRENA’s analysis, will depend on whether governments can synchronize renewable deployment, electrification, grid expansion, storage growth, and efficiency improvements simultaneously rather than sequentially.
