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Nick Cunningham

Nick Cunningham

Nick Cunningham is a freelance writer on oil and gas, renewable energy, climate change, energy policy and geopolitics. He is based in Pittsburgh, PA.

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Solar To See Twice As Much Investment As Fossil Fuels By 2040

Solar Panels

The wind and solar industry are set to attract substantially higher investment than fossil fuels over the next several decades, according to a new assessment from Bloomberg New Energy Finance.

Between now and 2040, an estimated $7.8 trillion in investment will pour into the renewable energy industry, more than double the $3.2 trillion that BNEF expects to be invested into the coal, natural gas and oil industries.

More staggering is the fact that individual renewable energy technologies will garner as much or more investment dollars than the entire fossil fuel industry. For example, onshore and offshore wind will see $3.1 trillion in investment, whereas rooftop and utility-scale solar alone will see $3.4 trillion in investment, more money than all the oil wells, natural gas wells and coal mines – combined. Wind and solar capture 64 percent of the 8.6 terawatts of new power capacity expected to be installed over the next 25 years.

It is hard to overstate the implications of these conclusions from BNEF. This amounts to a peak in the fossil fuel industry in the relatively near future. By 2025, BNEF forecasts a peak in the generation of electricity from fossil fuels, a tipping point after which the industry goes into decline. Solar and wind become simply too cheap for coal and gas.

While solar and wind are already able to compete with new gas or coal-fired power plants on price, by the middle of the next decade renewable energy will be cheaper than even the existing gas and coal-fired power plants.

Doubters of renewable energy should consider one fact. Solar and wind, as technologies, see costs decline the more they are deployed. Fossil fuels (coal, gas and oil), as natural resources, do not enjoy the same cost structures. Sure, companies can tweak extraction practices, but natural resources face upward price pressure the more they are extracted and consumed – scarcity drives up prices. "You can't fight the future," said Seb Henbest, the lead author of the BNEF report. "The economics are increasingly locked in." By 2030, solar and wind become the cheapest source of electricity in most parts of the world. Related: This Contract Could Help Iran Win The OPEC Oil War

BNEF forecasts a steady rise in renewable energy around the globe. In Europe, renewables account for 70 percent of electricity generation in 2040, a sharp increase from 32 percent in 2015. The U.S. will lag a bit behind, but renewables will jump from a 14 percent share in 2015 to 44 percent in 2040. Even China, which has always been held up as an unending source of demand, is shifting rapidly to renewables. Through 2040, 73 percent of the new electricity capacity additions will be renewable. Coal capacity in China peaks in 2020 and then begins to decline.

Globally, 60 percent of electricity generation will come from zero-emissions sources in 2040. While the exact market share figures are obviously moving targets, the direction, at least, is very clear.

The oft-cited Achilles heel of renewable energy – its intermittency – becomes less of a problem as time goes on. That is because batteries will also see steady reductions in cost. BNEF sees battery storage rising from just 400 megawatt-hours today to a staggering 760 gigawatt-hours in 2040. Also, as wind and solar technologies improve, their capacity factors are expected to rise.

The shift to cleaner energy in the electric power sector is already underway, but for transportation sector (oil vs electric vehicles), the transition will be slower. Nevertheless, the end result is the same: EVs will increasingly take up market share at the expense of oil. Related: Oil Refining Capacity Set To Surge, But Can It Boost Oil Prices?

For incumbent utilities, already under serious pressure from distributed sources of renewable energy, the future is not necessarily as grim as for fossil fuel producers. So long as utilities shift towards cheaper renewable energy, they will not be left behind. And the rise of EVs provide them with a rare source of growth. BNEF says that by 2040, the dramatic rise of EV adoption will make up 8 percent of global electricity demand.

This epochal shift from fossil fuels to clean energy will result in a dark future for companies producing oil, gas and coal. As demand peaks and declines, prices will never come back, particularly for coal. Short-term price bumps are likely, but the trend over the next several decades is clear – flat or declining demand will lead to a glut in supply, keeping prices depressed.

Finally, the above figures only take into consideration today’s policies. And notably, the shift towards clean energy under the BNEF forecast, astounding as it is, will still result in a world that falls short of the 2-degree Celsius climate target that the international community is hoping to stay under. That means that more climate policies are likely as time goes on, which will only accelerate the shift away from fossil fuels.

By Nick Cunningham of Oilprice.com

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Leave a comment
  • mchentrp on June 14 2016 said:
    Right. Windmills and batteries are more cost effective so long as they are propped up by government subsidies.
  • jack b :-) on June 17 2016 said:
    If the goal is a gradual decline in civilization, in regards to the quality of life, then alternatives are the way to go. For countries that want to follow a growth curve (up) versus a bell curve, then hydrocarbons, and their vastly superior & cost effective btu content is the only way - currently on this planet - to reasonably achieve that growth. If world (enforcing) governments artificially fail to embrace the growth the citizenry demands, then civil unrest will abound.

    Or maybe not so civil.
  • Lee James on June 17 2016 said:
    Fascinating the way the big picture on energy is seen so differently among people living in the same country.

    Interesting that fossil fuel extraction still gets so many write-offs, and tax deferrals, after all these years.

    Interesting that the "energy-needy" developing world -- the world that is supposedly looking to acquire all the goodies we take for granted -- will show the developed world how to do energy: cell-phone style, where centralized electric grids are de-emphasized in favor of local wind and sun generation. But the developed world will lead the way on fossil fuel demand as demand plateaus, or even declines, in our part of the world.

    No question about it, transitioning away from fossil fuels is where the world is rightfully headed.
  • mulp on June 17 2016 said:
    "If the goal is a gradual decline in civilization, in regards to the quality of life, then alternatives are the way to go. "

    Yep, paying workers more than three trillion dollars more in wages will lead to riots of workers who are angry at being paid to work instead of getting welfare from being unemployed and disabled by black lung, hands crushed by drill pipe, and too much production killing all the jobs as exploration is halted.

    The unemployed oil and gas workers have never been happier that the low prices have idled drill rigs. And the coal miners are overjoyed that cheap natural gas has made coal too expensive to compete putting them back on the dole.

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