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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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Wind And Solar Dreams Clashing With Hard Economic Facts

  • The IEA's predictions on reduced need for oil and gas have been contradicted by their own calls for increased exploration amid rising demand.
  • High costs of raw materials and development in the wind and solar sectors, combined with competition from cheap Chinese imports, challenge the EU and US transition plans.
  • Political shifts in Europe, including policy reversals and the consideration of the economic burden on citizens, highlight the complexity and costs of achieving net-zero goals.
Wind Solar

Two years ago, in May 2021, the International Energy Agency published what many saw as a landmark report about the progress of the transition to net zero.

In that report, the IEA stated there was no need for new oil and gas exploration—even back then—because alternative energy sources were taking over quickly.

Five months later, in its Monthly Oil Market Report, the IEA called for more oil and gas exploration because supply was tight and demand was rising. 

This week, the IEA published an update of its Net-Zero Roadmap from 2021, in which it said pretty much the same things: wind, solar, and EVs were expanding so quickly that there was no need for new oil, gas, and coal exploration because demand would peak before 2030. Once again, reality will be a tough wall to run into.

Take the wind energy industry in Europe and the U.S. The costs of raw materials and project development have soared so high that wind developers are calling on governments to boost subsidies for the sector. Without fatter subsidies, wind power projects are unable to turn a profit.

Solar is doing better, but this may yet change, in Europe, at least. Solar is currently cheap because the majority of existing projects use cheap Chinese solar panels. European panel producers are crying out against this because they can't make a buck pitted against this low-cost competition.

It's a similar situation with EVs. In the U.S., EVs are camping out, sucking up space on dealers' lots. In Europe, carmakers are worrying about an influx of cheap Chinese EVs, so the European Commission's president had to essentially declare a trade war on China to protect the local industry—which has yet to reduce its costs enough to make its EVs affordable for the masses.

Even heat pumps, the flagmen of the transition, according to the IEA and various other organizations, are not doing so well after the EU said it wanted to ban fluorinated gases used in fridges and heat pumps. The industry spoke out against this, saying it would make their products more expensive—and they already cost a pretty penny.

Then, there is the issue of transmission lines. The transition, featuring massive amounts of so-called distributed power generation, would require an equally massive expansion of grids to accommodate that distributed power.

Per the IEA, "Electricity transmission and distribution grids need to expand by around 2 million kilometres each year to 2030 to meet the needs of the NZE Scenario."

The IEA then went on to note that the biggest obstacle was permitting—but it is quite likely that the cost of expanding grids at a rate of 2 million kilometers annually would be quite prohibitive.

Meanwhile, as the IEA and others double down on their transition vision, some from the political class in Europe are starting to change their minds as the reality of how much the transition would cost for the average voter sets in.

The UK's Prime Minister Rishi Sunak caused an uproar this month when he announced several changes to the Tory party's net-zero plans, including a five-year delay to the ICE car sales ban and a laxer target for the replacement of gas boilers with heat pumps.

Not only this, but Labour, which are even more pro-net zero than the Tories, recently said they would stick with the watered-down gas boiler phaseout plan of Sunak, should they win the next election.

Sweden has also reversed many of the net-zero policies introduced by the previous government due to the cost these policies would have on the Swedish people. "What we are doing now, including tax cuts on fuel, increases emissions, but we are doing a lot of other things that will lead to lower emissions long term," Finance Minister Elisabeth Svantesson told media this month. "Don't forget that this is a very tough time for a lot of people."

This rising tide of target revisions prompted one FT columnist to complain that populism was threatening to derail the transition. He then went on to attribute this rise in populism to the fact that the transition narrative had "glossed over" the costs.

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Indeed, the costs of the transition are not among the usual topics of conversation when it comes to the transition. These usual topics are millions in EV sales, millions in green jobs, and a static climate.

Speaking of those green jobs, this is another point where the transition narrative breaks down. In another FT column this week, commentator Sarah O'Connor noted that the future green jobs hailed as ushering a new era would be rather concentrated regionally, and there will be many jobs lost as well—another thing few talk about, especially the IEA.

Once again, then, we see wishful thinking disguised as forecasting while in the real world, oil prices are hovering near $100 because demand remains strong despite inflation. And it is not going down without deliberate action to reduce it.

By Irina Slav for Oilprice.com

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Leave a comment
  • Mamdouh Salameh on September 28 2023 said:
    The clash between renewables and hard economic facts is inevitable. Furthermore, it has been on the cards for a very long time.

    Environmentalists, the International Energy Agency (IEA), the EU Secretariat, the UN Intergovernmental Panel on Climate Change (IPCC) and vested interests have been glossing over the shortcomings and rising costs of renewables on the false assumption that they can ram them through our throats stealthily. But this isn’t going to pass.

    The rising costs of controlling climate change and cutting emissions are becoming a real financial burden on people and industry in terms of rising costs of living and also rising costs of manufacturing.

    That is why the UK is backtracking on key green policies including delaying the proposed ban on internal combustion Engines (ICEs) by five years from 2030 to 2035. . It is also the why the EU faces a jaw-dropping significant funding gap in its climate goals estimated at $1.06 trillion annually to achieve its 2050 targets.

    A pragmatic approach to this chronic problem is made of two parts. The first is an admission by all those concerned about climate change that renewables on their own are neither capable of satisfying global demand for electricity nor are they capable of driving even a small economy.

    The second part is to continue investing heavily in renewables and also continue to invest in oil and gas as long as there is demand for them while doing our utmost to cut emissions. The bigger the renewables’ share in global electricity generation, the less fossil fuels the world will use.

    Dr Mamdouh G Salameh
    International Oil Economist
    Global Energy Expert

Leave a comment




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