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UK’s Green Investment Bank Sold For $2.9B

After several delays, Australian investment…

Research Warns Cheap Solar Will Dampen Oil, Coal Demand

Offshore rig

A new research from Imperial College London and think tank Carbon Tracking Initiative has warned that the falling costs of solar power and electric vehicles is likely to weigh on the demand for oil and coal from 2020 onwards.

The research studied the cost trends in electric cars and solar power, and reviewed government policies targeting renewable energy and their effect on the power industry and road transport, which combined account for 50 percent of the global consumption of fossil fuels.

Despite much skepticism, especially from the oil industry, regarding the potential of renewables to become a mainstream source of energy, it seems that they are getting there, albeit slowly. According to the authors of the research, over a decade, solar and electric vehicles could capture 10 percent of the market share now belonging to fossil fuels.

This is a potentially devastating loss: the Carbon Tracker says the rise of electric vehicles on its own can take 2 million bpd from daily demand – the same amount that caused the 2014 oil price collapse.

In their report, the authors challenge energy outlooks from BP and Exxon, as well. For instance, according to the researchers, photovoltaic installations could come to account for as much as 23 percent of power generation in 2040, versus Exxon’s projection that all renewables will account for just 11 percent of power generation in that year. Related: Why 100% Renewable Energy Is Just A Dream

In EVs, the Grantham Institute/Carbon Tracker team says these will come to account for a third of all vehicles on the road in 2035 and more than half by 2040. These are very different figures from BP’s forecast, which estimates that EVs will only account for 6 percent of all cars on the road in 2035.

To substantiate its projections, the research team cites PV and battery costs that are falling sharply, making solar power and electric cars increasingly affordable. In fact, the scenario developed by the team assumes that EVs would become cheaper than fossil fuel powered cars from 2020 onwards.

By Irina Slav for Oilprice.com

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  • JHM on February 02 2017 said:
    The projections of BP and Exxon deserve close scrutiny.

    For example, BP claims that 100M EVs in 2035 would only offset 1 mmbpd of motor fuel. But this implies that in 2035 the average vehicle consumes only 0.01 barrel per day or 4.2 gal/day. This compares with a fleet average of 95 MPG. Wonderful! That means a global fleet of 2 billion vehicles in 2035 only consumes 20 mmbpd. That's decline from about 67 mmbpd today. This would be an absolute disaster for the industry even without EVs in the picture.

    BP says the EV fleet reaches 100M by 2035, but this implies that the fleet grows at less than 26% annually for twenty years. And yet 90% of auto executives believe EVs will dominate auto sales by 2025, which implies a 57% annual growth rate. So what explains the gap between oil executives and auto executives? Is the truth closer to 57% or 26%? Well even at a modest 35% growth rate the EV fleet hits 100 by 2029 and displaces 5 mmbpd of demand for motor fuels. BPs forecast is incredibly sensitive to modest changes in assumptions. But what if the auto executives are right? At 57% annual growth, the EV fleet hits 116M and displaces 5.8 mmbpd by 2025.

    It's pretty clear why companies like BP and Exxon do not publish headlines like "EVs to hit 100M by 2025." It would absolutely destroy their market caps if the average investor knew the risk that EVs could grow even at a moderate 35% rate.

    Investors should take heed from reports like this from Grantham Institute. While the Carbon Tracker team may be focused on climate change issues, it do does not have a financial or institutional motive to overstate the potential for EVs to reduce carbon emissions. Just the opposite, if they were to overstate EVs as a solution, it would undercut alternative efforts to curb emissions. They need to have a conservative view of just how fast EVs can displace auto emissions.

    So oil companies have a direct financial motive to understate the risk of EVs while environmental groups need a conservative view of how quickly EVs can displace auto emission. Meanwhile, auto executives recognize that they need to get into the EV market or face obsolescence. So who will you trust? Do your own math; I've done mine. My personal view is that the growth rate will be between 35% and 55% so that the EV fleet hits 100M between 2025 and 2029.
  • zipsprite on February 02 2017 said:
    From 2015 to 2016 plug in vehicle sales increased almost 40% and that is without the manufacturers even trying to market them because they are still on such a steep development curve. Range is increasing steadily, prices are falling, charging stations are being built at a rapid pace (some offering free charging) and the number of models on offer is about to skyrocket. Add in fuel and maintenance costs that are a fraction of a petrol car and ICE (internal combustion engine) cars start to look like they will become an endangered species sooner, not later. Oil companies are either playing a cagey game or are in deep denial. Talk about your market disruptions, this will be a tsunami.
  • Kimberly V. Davis on February 06 2017 said:
    Is this report about the U.S. or the world? We phased out oil for electricity generation after the OPEC oil embargo of 1973, over 40 years ago. (Perhaps it's expected these readers know that.) In any case, a reference to natgas price trends in this context would be useful.

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