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OPEC Predicts A Rebound In U.S. Shale

OPEC Predicts A Rebound In U.S. Shale

While oil prices fell back…

Irina Slav

Irina Slav

Irina is a writer for Oilprice.com with over a decade of experience writing on the oil and gas industry.

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Is The Energy Transition Creating A Major Investment Bubble?

Tesla this month joined the S&P 500 as the fifth-largest company on the index, after its stock skyrocketed this year, driving a lot of appetite for EV investment in general. NextEra, the solar power firm, overtook Exxon as the most valuable energy company in the United States, albeit just briefly. Everyone is talking about hydrogen. The energy transition narrative is hogging energy headlines. 

But what if it turns out to be one huge bubble?

Not all EVs are Teslas At least half a dozen electric car startups got a boost from Tesla’s strong delivery results that drove it to its first-ever full year in the black and the accompanying share price jump. Some decided to go public, like Nikola, the startup that promised a hydrogen-electric pickup truck that would change the game for Tesla.

Nikola went public in June to much hype and investor interest, enjoying a more than 100 percent share price gain over the first three days of trading. The hype ended when a short-seller claimed Nikola was “an intricate fraud built on dozens of lies over the course of its Founder and Executive Chairman Trevor Milton’s career.”

Despite efforts by the startup to salvage the deal that basically legitimized it as a carmaker, GM canceled the $2-billion contract, replacing it with a much more modest one, effectively putting an end to the startup’s ambitions.

Of course, not all EV startups are like Nikola. Yet it is hard to ignore the argument that a lot of their newfound attractiveness for investors comes precisely from Tesla’s success, at least as much as it comes from the major regulatory push to make EVs more popular, theoretically opening up a big market for the products of these startups. Even with this deliberate effort to make EVs more attractive, not all EVs are Teslas and it is unlikely that there will be “a new Tesla” among the new entrants on the EV market. Related: 3 Reasons Why Oil Could See An End Of Year Rally


How cheap are cheap solar and wind Solar and wind farm costs are falling - this has been one of the main themes in renewable energy this year. Indeed, the costs for solar panels and wind turbines have fallen significantly over the last decade. In some parts of the world, thanks to the climate, they are on par with fossil fuels. But this is only in some places.

In Germany, for example, solar and wind power make up one of the largest portions of the national energy mix. And yet German consumers pay the second-highest electricity bills, precisely because of the shift from fossil fuels to renewables, which is funded by taxes and levies on businesses and households.

In the United States, renewable energy companies are in trouble because the pandemic has hit the profits of their usual financial supporters among Wall Street banks and institutional investors. Before the pandemic, these invested heavily in solar and wind, taking advantage of the tax credit system that let them offset income through these investments, the Financial Times reported earlier this month. Now, solar and wind firms are struggling to find investor partners for the so-called tax equity deals. As a result, the industry has started calling on legislators to start funding their projects directly, with federal money.

On a positive note, cost reductions, at least in solar panels, are likely to continue, as are efficiency gains. At some point, these efficiency gains might offset the loss of output during overcast winter days, which is currently quite substantial.

The hydrogen enigma

Hydrogen really rose to prominence this year, especially after the European Union announced official plans to make green hydrogen a major element of its energy transition. Shares in hydrogen companies have been booming as a result.

Related: The Worst Performing Energy Stocks Of 2020

Green hydrogen is produced by breaking water down into its constituent elements using electricity produced by solar or wind installations. Currently, the technology is a lot more expensive than the method of producing hydrogen from natural gas or coal, for various reasons, depending on the specific hydrolysis method. Basically, the challenge comes down to the difference between the input and output of energy. For now, green hydrogen’s production requires a greater input of energy than it outputs.

Some believe green hydrogen will become cheaper over time and cite the falling costs in wind and solar technology. Yet these falling costs cannot make the intermittent nature of renewable electricity - a major stumbling block for the alkaline water hydrogen production method - permanent. Another method at the operational stage, polymer electrolyte membrane, is itself way too expensive to make sense at a large scale. These costs may come down but it will take a long time.

Bigger, better batteries

Tesla and Neoen recently signed a deal for the world’s next biggest battery storage facility, to be built in Australia. The project costs $84 million and will have enough capacity to provide half a million households with power for the duration of one hour.

This is where battery technology is right now: it can provide backup electricity supply in case of a short outage, but it cannot ensure the continual supply of power in case of a longer loss of supply for whatever reason. And then it would take some time before the battery “fills” with electricity again based on the amount of sunshine or wind available at its location. Batteries have a long way to go to provide the kind of reliable storage that the grid and its users need.

The energy transition is certainly a great concept that promises cleaner air to breathe. Yet there is a host of challenges on the way and these are largely being swept under the rug. Sooner or later, as history shows, things swept under the rug, be it subprime mortgages or hydrogen costs, begin to smell. The challenges of the energy transition need addressing, and this should happen sooner rather than later to avoid yet another bubble, this one of enormous proportions.

In the end, it’s all about economics, as Basil Karampelas, managing director of advisory firm SierraConstellation Partners told Oilprice.

“What has hampered the transition to green energy and bio-based chemistry has been the inability to be cost-competitive with hydrocarbon-based energy (sometimes even when including subsidies). If the drive to adopt green energy is joined with a concerted effort to develop cost-effective technologies, that is the only way one will be able to ensure that these plans don’t crash and burn.”

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on December 28 2020 said:
    An imminent global energy transition from oil and gas to renewable energy is an illusion. Even partial transition can’t be achieved without major contributions from natural gas and nuclear energy. Moreover, what is hampering a faster transition to green energy is the inability to be cost-competitive with hydrocarbons even with subsidies. In the end, it is all about economics and not hype and militant slogans by environmental activists and hydrocarbon divestment campaigners and also vested interests.

    The astronomical rise of Tesla and other electric vehicle (EVs) companies will be short-lived because it is based on hype promoted almost daily by the media. They are bubbles waiting to burst exactly as the subprime mortgages crisis in the United State in 2008/9 which almost brought the global economy to its feet and precipitated a global financial crisis leaving behind it a trail of bankruptcies involving some major banks.

    Like EVs, there is a great amount of hype surrounding green hydrogen. Hydrogen really rose to prominence this year, especially after the European Union (EU) announced official plans to make green hydrogen a major element of its energy transition.

    Green hydrogen is produced in two ways: by electrolysis using electricity produced by solar or wind energy or from natural gas which is the cheaper method. However, green hydrogen’s Achilles heel is that its production requires a greater input of energy than it outputs. This is a wastage of energy. If that is the case, why not then bypass hydrogen and use solar and wind energy or natural gas directly to generate electricity.

    Moreover, there is a lot of hype about falling solar and wind energy costs. But Germany’s experience tells a different story. Whilst solar and wind power make up a relatively large portion of the energy mix in Germany, German consumers pay the world’s second-highest electricity bills precisely because of the shift from fossil fuels to renewables, which is funded by taxes and levies on businesses and households.

    The claim that the COVID-19 pandemic has accelerated the onset of peak oil demand and invigorated the transition to green energy is a huge lie. While the pandemic has indeed caused extensive damage to the global economy particularly the global oil industry, it is reversible and soon will be behind us particularly with the start of anti-COVID vaccination in many parts of the world.

    In fact, the pandemic has irrevocably proven how inseparable oil and the global economy are. By destroying one you destroy the other and vice versa. The global economy will continue to run on oil and gas throughout the 21st century and far beyond.

    Dr Mamdouh G Salameh
    International Oil Economist
    Visiting Professor of Energy Economics at ESCP Europe Business School, London

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