The great electrification: Insights, gaps, and investment implications through scenario analysis

The great electrification requires major investments and aligned incentives

In the first article of this series, we introduced the relevance of the great electrification to Europe’s geopolitical position in terms of climate policies, competitiveness, and energy security. As outlined there, the great electrification is a transformation toward an energy system in which renewable electricity plays a larger role in the generation and consumption of energy. Such a transformation requires massive investments in wind and solar generation capacity and electricity grids, along with the electrification of energy demand in buildings, industry, and transport.

According to the impact assessment of the EU’s 2040 climate target, the shift will require around EUR 700bn annually for the energy system through 2050 and additional investments in the transport sector. On top of that, the EU must secure further funding in response to Draghi’s call to action to boost the bloc’s competitiveness. As a substantial share of the required investments will need to come from the private sector, the great electrification goes beyond mobilizing large amounts of capital. A successful transition also depends on a complex combination of incentives, policy clarity, and investor confidence. The newly released Clean Energy Investment Strategy aims to mobilize and de‑risk the capital required for the investments outlined in the scenarios, illustrating the role of scenario analysis in shaping the transformation of the energy system.

Energy system scenarios are essential tools for navigating this complexity. They help stakeholders understand how and under what conditions energy demand, generation, and grid infrastructure may evolve and interact. By providing structured indications of future trajectories, scenarios allow decision‑makers to evaluate capital needs, anticipate risks, and identify where investment can be deployed most effectively. In this respect, scenarios not only describe the transition: they actively help shape it. Because investment strategies rely on them, scenarios can influence capital flows, and, ultimately, the pace and direction of the great electrification and the energy transition in general.

The EU’s electrification can follow multiple possible pathways

In this article, we evaluate possible pathways for the EU’s great electrification based on scenarios developed by Shell (2026 Energy Security Scenarios), the International Energy Agency (IEA) (World Energy Outlook 2025), the European Commission (2040 impact assessment), and the Clean Energy Technology Observatory.[1] Table 1 outlines the main characteristics and scope of each scenario.

[1] We selected the scenarios for this analysis based on practical considerations such as data availability, the breadth of their analytical scope, and the diversity of the institutions producing them. This selection should not be interpreted as an endorsement of the credibility, accuracy, or advisory value of any individual scenario. Each scenario is used strictly for comparative and illustrative purposes within the context of this assessment.

The interpretation of scenarios demands careful analysis

For decision-makers, it is essential to remember that scenarios are not forecasts. They are structured “what if” simulations based on explicit assumptions about technology, policy, costs, and consumer behavior. Their purpose is to illustrate what could happen if these assumptions hold, rather than predict the future. Therefore, interpreting the implications from these scenario results requires an understanding of the underlying assumptions, sensitivities, and interactions that drive the simulated outcomes.

For instance, most energy scenarios are built around different levels of climate ambition, typically framed through long‑term greenhouse gas reduction targets such as “net‑zero by 2050.” In reality, the pace and direction of the energy transition are increasingly being shaped by energy‑security motivations. While both dynamics may steer the evolution of the energy system in a similar direction, the results can be different.

In this article, we propose a framework for interpreting the great electrification of the EU within scenario results, highlighting what scenarios say (and do not say) about it, and what these insights may imply for the great electrification. Our analysis in the following sections focuses on four areas of assessment.

GHG emissions reductions

In our framework, we start by assessing the climate ambitions embedded in each scenario. We do this by comparing the GHG emissions trajectories across the selected scenarios. Emissions reductions are typically a core structural assumption that shapes both the scale and speed of change in energy-system simulations. Scenario developers often define future emissions pathways based on the ambition of climate‑policy targets or on the temperature outcomes implied by the global carbon budget. Examining the GHG emissions trajectories reveals how ambitious a scenario is in driving the energy transition with respect to climate change.

Final energy consumption

Next, we analyze trends in total final energy demand to understand how the energy system evolves. Looking at non-electric energy carriers reveals the assumptions about economic growth and energy efficiency. This, in turn, helps to distinguish between electrification driven by substitution versus electrification driven by overall demand growth.

Electricity consumption and electrification rate

We then assess the rate of electrification by examining how electricity evolves within final energy consumption, both in absolute terms (total terawatt hours (TWh) consumed) and in relative terms (the share of electricity in final demand). Absolute consumption reflects the magnitude of the electrification push, while the relative share reveals whether electricity is truly displacing other energy carriers or simply expanding in parallel with a growing energy system.

Sector-level electrification dynamics

After clarifying the main system-level dynamics behind the great electrification, we turn to sector‑level insights derived from the principal scenarios developed by the EC. We start with the power sector, assessing how electricity supply is projected to grow and transform to meet rising demand. We then trace how this additional electricity flows into transport, buildings, and industry, providing a clearer view of where electrification is expected to advance most rapidly and where uncertainties remain greatest.

We conclude by summarizing the areas of convergence and divergence across scenarios and discussing the strategic implications for financial and corporate decision-makers navigating the energy transition, including the great electrification.

Climate-driven scenarios show faster GHG emissions reductions

The scenario summaries in table 1 and GHG emissions profiles in the EU in figure 1 show a clear distinction between scenarios driven by climate ambitions and those driven by technological or geopolitical trends.

The scenarios provided by the European Commission (EC) and Shell’s Horizon scenario, are climate-policy-driven. Their emissions profiles in figure 1 follow a similar trend and stand in contrast to Shell’s Surge and Archipelagos scenarios. In the latter two scenarios, changes in the energy system are driven by rapid technological growth (Surge) and fragmented geopolitics (Archipelagos), resulting in slower GHG emissions reductions.

The IEA’s World Outlook 2025 scenario data do not include specific GHG emissions figures for the EU. However, based on the main assumptions summarized in table 1, the emissions profile of the Current Policies Scenario is likely to resemble those of Surge and Archipelagos, while the policy-driven Stated Policies Scenario is expected to be more similar to that of Horizon.

The emissions data across different scenarios are not based on fully consistent measures of total EU emissions. The EC reports either total or net emissions for the energy sector, whereas the Shell scenarios report economy‑wide net emissions. As a result, absolute emissions levels cannot be compared directly, but the profiles in figure 1 still allow for interpreting the relative speed and direction of emissions reductions within each scenario.

Final energy consumption shows structural differences across scenarios

The different evolution patterns of the total final energy consumption in figure 2 reveal important structural differences across the scenarios in terms of growth. Shell’s Surge and Archipelagos scenarios both show a significant increase in final energy consumption from 2015 to 2030, followed by a moderate decline through 2040.

The scenarios developed by the IEA and the EC, as well as Shell’s Horizon beyond 2030, show a transition in which final energy consumption declines. For the IEA scenarios and Horizon, this decline is relatively moderate compared with the sharper decline seen across all EC scenarios. These differences reflect the higher climate-policy ambitions embedded in the EC’s policy-driven scenarios.

Electricity consumption surges across all scenario outlooks

All scenarios agree that electricity will account for a growing share of final energy consumption in the EU toward 2040 (see figure 3). Shell’s scenarios project the highest growth in electricity demand, followed by those from the IEA and the European Commission. Overall, electricity needs in the EU are expected to rise sharply, increasing from about 9EJ to nearly 12EJ or more by 2040. This level of growth will require significant investment in electricity generation assets, grid infrastructure, flexibility assets, and technologies to electrify demand.

Electrification rate accelerates rapidly between 2030 and 2040

Combining the evolution of total growth of final energy consumption with the growth of final electricity consumption provides insight into how the scenarios portray electrification. The share of electricity in the EU’s final demand rises across all scenarios, increasing from just over 20% today to an average of 29 % by 2030, and reaching as high as 90% by 2040 in the fastest electrifying scenarios (see figure 4).

However, the pace of electrification in the EU, varies across the scenarios. Based on the available data, we can conclude that electrification advances most rapidly in the policy-driven scenarios. In the Shell scenarios, the increase is noticeably slower than in the EC scenarios, with electrification even stalling or slightly declining up to 2030.

Despite these differences, most scenarios agree that the period from 2030 and 2040 is projected to be a decade of sharp electrification.

Electrification is certain but its timing differs across scenarios

The electrification is already reshaping the EU’s energy system in a structural way. Across all analyzed scenarios, it appears as a fundamental feature of the energy transition. Scenarios show a modest but steady increase in electricity’s share of final energy consumption before 2030, growing from 23% by 2024 to 29% by 2030 – a compound annual growth rate (CAGR) of 3.9%. This is followed by a much sharper acceleration in the next decade, with electricity reaching 70% to 90% of final energy consumption by 2040, corresponding to a minimum implied CAGR of 9.3%. This “gearing‑up” effect is consistent across all scenarios.

Competitiveness and strategic autonomy are now pushing EU electrification forward even faster than climate policy alone. Although most scenarios are still framed by emissions-reduction targets, the economics of electricity are becoming increasingly persuasive – and geopolitical shocks may accelerate the shift beyond current expectations. Taken together, these structural forces suggest that the EU’s electrification momentum depicted in the scenarios will continue to build, even under weaker climate‑policy signals. In practice, cost competitiveness and strategic autonomy are set to become the primary catalysts of the great electrification.

A simple reality check links electrification directly to renewable-power output. Scenarios project renewables growing about 12% annually from 2020 to 2030, before slowing to roughly 2% annually in the 2030s. Today, the gap between these projections and actual generation is stark: Eurostat reports around 1,260TWh of renewable generation in 2025, versus scenario averages of 3,400TWh by 2030. Reaching that level would require nearly tripling output in just five years – an extraordinary acceleration relative to recent deployment trends.

Scenario pathways differ because they rest on different assumptions

The scenarios differ because they rest on distinct assumptions about what drives the transition. The EC assumes strong, coordinated climate policies, leading to a rapid decline in fossil‑fuel use, major efficiency gains, and significant electrification toward 2040. In contrast, Shell’s Surge and Archipelagos scenarios emphasize technological and geopolitical drivers, resulting in slower electrification through 2030, and a temporary rise in molecule‑based fossil energy before electricity regains momentum.

For investors, this means that similar long‑term outcomes can arise from very different underlying forces. Policy‑led pathways point to a faster and more orderly restructuring of energy demand and supply, while technology‑ or geopolitics‑driven pathways imply a more gradual and sectorial uneven transition across sectors.

Understanding these scenario assumptions is therefore critical, as they shape why electrification accelerates – whether through policy intervention, geopolitical pressure on fossil systems, or the improving economics of clean technology. Reading scenarios without this context risks misjudging timing, capital needs, and sector exposure.

Our analysis points to even faster electrification ahead

All the scenarios reviewed point in the same direction: The EU’s energy system is set for a sustained, structural acceleration in electrification. The individual trajectories differ, but the underlying trend is consistent. Many of these models rely on strong climate policy assumptions. Today’s geopolitical environment is reinforcing – and in many cases accelerating – the very dynamics already reflected in climate‑driven scenarios.

Ultimately, scenario models are structured translations of the information, assumptions, and constraints built into them. As we have shown, both the scientific modeling and the choice of inputs can be equally right or wrong. What matters most is understanding what each scenario actually assumes about policy ambition, technology progress, or geopolitical pressures.

In our view, there are structural reasons to expect even faster change than the scenarios we analyzed suggest. At the same time, we stress that a disciplined, well-informed reading of scenarios is essential for any strategic or investment decision. Misinterpreting the underlying assumptions can lead to misjudging timing, capital requirements, or exposure – both upside and downside.

With this in mind, the next articles in this Great electrification series will delve into the specific sector dynamics shaping the evolution of key components of the energy system, as outlined in our introduction.

In the previous section we examined the main dynamics and drivers shaping the electrification of the EU’s energy system. To understand what accelerates or limits the trends captured in the scenarios, it is essential to analyze the more detailed developments occurring at the sector level, in both electricity generation and consumption. Among the scenarios considered, only those produced by the EC provide sector-level data with a high level of detail. These scenarios also represent the most ambitious pathway in terms of GHG reductions and electrification, and their outputs offer valuable insights into developments across all sectors.

Drawing on this sector-level information, this annex describes how large-scale electrification in the EU progresses in this subset of high-ambition EC scenarios from 2020 to 2040. In the following articles in this report series, we will examine each sector in greater depth.

Renewable electricity becomes the main source of power

Starting from similar shares of fossil, nuclear, and renewable generation in the 2020 baseline year for the electricity-generation mix, all five scenarios converge on the same structural outcome: Fossil‑based electricity generation declines sharply and becomes almost negligible by 2040; nuclear generation remains broadly stable – although slightly reduced– and renewable generation expands dramatically, increasing its share of the electricity mix by roughly a factor of four by 2040.

Although the convergence across scenarios may appear striking, the uniformity stems from their underlying storylines. Each scenario is developed starting from a similar set of assumptions shaped by long‑standing consensus on key EU energy‑policy directions. If this consensus continues to guide the great electrification, one conclusion stands out across the data: From the perspective of power generation, the great electrification is essentially about multiplying today’s renewable output by a factor of four over the next 15 years.

Energy demand electrifies across all major sectors

Knowing where the additional electricity comes from, the next systemic question is: Where will it be used?

In the following sections, we examine the main drivers reshaping energy consumption. This transformation is essentially a two‑part story unfolding simultaneously. As the share of electric end‑use technologies unfolds – electric vehicles, heat pumps, electrified industrial processes – so does the way energy is consumed. As outlined in the first article of this series, these two dynamics can reinforce one another, positively or negatively, depending on how technology adoption, costs, system efficiency, and behavioral trends interact.

In the next section, we introduce the main contours of these evolving dynamics, which will then be examined in more detail in the subsequent sector‑specific articles.

Transport electrifies gradually, with faster progress after 2030

As we showed in the first article in this series electricity currently plays a small role in transport (see figure 6). Although electrified alternatives for passenger cars, buses, and freight, as well as the associated charging infrastructure, are expanding rapidly, most transport is still powered by fossil fuels and will remain so for quite some time. For aviation and shipping, electrification remains technologically challenging.

In all EC scenarios, the decade from 2030-2040, which we highlighted in the previous section as a major period of electrification, is also a transformative period for the transport sector. During this period, transport related oil dependency is projected to drop sharply, falling from nearly 89% by 2030 to between 42% and 31% across the analyzed scenarios, as the shares of electricity and biofuels increase. Electrification in transport also reduces total energy consumption due to the higher efficiency of electric drives.

Buildings electrify through electric space conditioning and insulation

Roughly 80% of the energy used in buildings goes toward thermal uses, referred as heating, ventilation and air conditioning (HVAC). This makes insulation a decisive factor in reducing overall energy demand. Better insulation not only lowers the amount of heat required, it also reduces heat demand to a level where electricity‑based solutions become technically and economically viable.

At an aggregate level, the EC scenarios illustrate a clear and progressive transformation of energy use in buildings (see figure 7). As the scenario documentation explains, the interplay of improved insulation and electric-based HVAC technologies shapes the sectoral evolution depicted in the reviewed scenarios. Natural gas consumption drops by 50%, from over 100m Mtoe in 2020 to below 50Mtoe in 2030, followed by another 50% decline by 2040.

Industry electrifies as electricity replaces oil first and natural gas next

Industry remains one of the most complex sectors to electrify, given the diversity and specificity of manufacturing processes. As modeled in the EC’s Climate law scenarios base year, industrial energy use in the EU is highly concentrated in a handful of high‑consumption segments: chemicals (≈20% of final industrial energy use), refineries (≈15%), non‑metallic minerals such as cement and glass (≈12%), pulp and paper (≈12%), food and beverages (≈9%), iron and steel (≈9%), and engineering and other metals (≈8%). Each of these sectors follows its own electrification pathway, shaped by process temperatures, feedstock needs, and the maturity of available fossil alternative technologies.

Figure 7 shows that the aggregated industry sector electrifies across all five EC scenarios, albeit at different rates. First, liquid fossil- fuel products lose prominence rapidly. By 2030, their use falls to half of electricity’s share, and by 2040 they drop to less than one-quarter of electricity consumption. Natural gas, which starts as the dominant fuel in the base year, is overtaken by electricity by 2030 in all scenarios. By 2040, natural-gas use declines to roughly one‑third of electricity consumption.