Renewable energy investments may be down, and the political will may be tepid, if not hostile — but nothing can stop the disruptive force of the clean energy revolution that is poised to permanently transform the global energy system in coming decades.
The world is at a point of no return.
We find ourselves in the midst of an unprecedented transition, where the old industrial paradigm is slowly breaking down.
As the old world dies, a new world is arising from within, bringing with it a disruptive potential that is at once accelerating the demise of the old, and enabling the rapid transformation of the future.
And at the heart of this great transition is energy.
In the US, we’ve had Donald Trump reject the Paris Agreement and abstainfrom key sections of the G7 commitment on climate change.
In the UK, Theresa May survived the General Elections by the skin of her teeth, but in the process her Conservative Party partnered with the rabid climate denying extremists of Northern Ireland’s Democratic Unionist Party (DUP).
In the European Union, Jean-Claude Juncker has quietly diverted 145 million Euros earmarked for environmental and climate protection to subsidise high-end defence technologies.
So you would be forgiven for believing that the renewable energy revolution is doomed.
Last year, new global investments in renewables fell 18% to $287.5 billion from a record high of $348.5 billion. Most of the decline came from China and Japan, where the focus has shifted to reforming grids to maximise storage and utilization of renewable power.
In the US, investment declined by 7%. Although overall in Europe, investment increased by 3%, it dropped by 16% in Germany — the pioneer of a decentralised renewable energy model — and in France by 5%.
In the UK, where investments rose by 2%, the next three years may see renewable investments collapse by as much as 95% due to the government’s preference for nuclear and gas.
Clean is still up
But here’s the catch: government-led investments are not the driving force of the clean energy revolution.
This is why there is little correlation between these investment figures, and the near-exponential growth of renewables.
Despite the decline in investments, as of this year the US near doubled its previous record on solar installations as a source of new electricity capacity, from 7.5 gigawatts (GW) to 14.8 GW.
In the EU, 90% of new power capacity came from wind, solar, biomass and hydro. Europe has also hit a new milestone, with wind power overtaking coal to become the second largest form of power capacity after gas.
The UK is currently lagging behind these developments, with only 8.2% of its energy coming from renewables (compared to the EU average of 16.4%).
Yet even the fracking-loving Tory regime sees the writing on the wall. The Department of Business, Energy and Industrial Strategy has increased its previous projection of new renewable capacity from 33 GW to 45 GW by 2035. The government sees no coal power being generated from 2024 onwards, and a combination of renewables and nuclear to dominate by the mid-2030s.
And according to the Renewables 2017 Global Status Report, last year the world added enough renewable energy capacity to power every house in the UK, Germany, France and Italy combined — and it did so at a price 23% cheaper than the preceding year.
The big drivers of system change
There are three fundamental reasons why this is happening, and why it represents an unstoppable exponential trend.
This has led oil majors to slash capital expenditures on new investments.
A glance at the top three oil majors helps us gauge how desperate the situation has become. In 2011, ExxonMobil, Chevron and ConocoPhillips made combined profits of $80.4 billion. As of 2016, their combined profits haemorrhaged to a mere $3.7 billion. Over the same period, their combined debt rose from $40.7 to $95.7 billion.
From now to 2022, debt as outstanding bonds in the US energy industry overall will rise from $27 billion to $260 billion by 2022. The US Energy Information Administration reports that in 2014, 68 US public energy companies spent 25% of operating cash flow to service their debt. This has now risen to 75% — mostly due to the higher costs of producing shale oil and gas.
Even if prices rise, this will have a major dampening effect on already tepid economic growth. And it will simply spur consumer incentives to shift to cheaper clean energy sources, as they already cannot afford to buy expensive oil.
That leads to the second trend:
International climate agreements might be flawed, but they reflect persistent public concern over the environmental impacts of oil, gas and coal. This has forced national governments to actively seek — or to be seen to be seeking — reductions in their carbon footprints. While progress has been slow, the impacts on the fossil fuel industries is colossal.
Demand for oil is already low, and while the International Energy Agency thinks demand will remain robust until 2040, other informed observers disagree.
A report by the Grantham Institute at Imperial College London and Carbon Tracker forecasts that both oil and coal demand will peak in 2020, and that gas demand will become weaker — the latter is now happening.
Royal Dutch Shell has suggested the peak could come as early as the late-2020s.
Statoil believes it could be between the mid-2020s and the late-2030s.
Some governments see what is happening, and are acting accordingly. In Norway, for instance, 37% of passenger cars sold in January were plug-ins. Oslo is offering residents up to $1,200 incentives to buy an electric cargo bike. The capital also aims to ban cars from the city centre and halve carbon emissions in four years, while investing $1 billion in bike superhighways.
So the risk of much of the world’s remaining oil, gas and coal resources becoming ‘stranded assets’ — assets which are unrecoverable for both economic and environmental reasons — is real, and growing.
Processes like this are inevitably accelerating due to a third factor:
Over the last decade, renewable energy costs fell by over 50%, and will halve again by 2025.
Major countries like Denmark, Egypt, India, Mexico, Peru and the United Arab Emirates now receive renewable energy at less than five US cents (about 4p) per kilowatt-hour — cheaper than both fossil fuels and nuclear.
In fact, last year, unsubsidised new renewable power was cheaper than fossil fuels in over 30 countries.
Developments in battery storage are set to consolidate the disruptive potential of renewables, by overturning the need to rely on fossil fuel’s domination of baseload power.
Lithium-ion battery cell costs have already plunged by 75% from 2010 to 2015. By 2020, they are tipped to fall a further 35%. And despite legitimate concerns about supply constraints, sustainable management and recyclingshould be able to address future challenges even amidst huge demand spikes.
Freefalling costs for solar power in India, leading solar to become cheaper than coal for the first time in that country, have led to the cancellation of plans to build 13.7GW of coal power plants. The plans were cancelled because they were simply no longer economically viable.
That’s why even some of the world’s biggest mining companies and fossil fuel suppliers — like BHP Billiton, Glencore and Anglo American — are increasingly incorporating renewable energy into their own operations to keep their costs down.
Scenarios for the new energy paradigm
Because of these superior economics, relatively conservative projections suggest that the market will be well on the way to transformation by 2050.
Here are three different scenarios.
1. Slow but sure
The Grantham Institute and Carbon Tracker forecast solar taking 23% of power generation by 2040, rising to 29% by 2050. Wind power would take another 12% of the power market by then, putting solar and wind in control of 41% of the world’s power. As early as 2035, electric vehicles will account for some 35% of the road transport market.
This is a fairly conservative scenario, but even so, it suggests the following insight:
If peak demand for oil comes earlier rather than later, however, all this could happen much faster.
2. Steady wins the race
A new study in the Journal of Sustainable Finance & Investment is far more bullish. The authors, Jemma Green and Paul Newman of the Sustainable Policy Institute at Curtin University in Australia, argue that:
“Forecasts for the share of renewable capacity in global energy demand will go beyond current estimates, due to the introduction of battery storage and decline in retail renewable electricity prices, and could account for 100% of global energy demand… by 2050.”
They characterise the combination of renewable energy with battery storage as possessing three key features of a “disruptive innovation” — from starting off in a niche, their expansion disrupts an existing technological system; they grow exponentially; and while growing, they create stranded assets as the old technological system dies out.
The study goes so far as to predict that solar PV with battery storage systems will not just impact businesses based around the centralised grid system, they will disrupt “the whole fossil fuel-based power system.” Companies and investors that derive their value from “carbon intensive energy” are at “serious risk of being rapidly devalued.”
So we arrive at the following striking inference:
The most striking thing about this forecast is that it does not assume a need for trillions of dollars of government subsidies.
It relies purely on the inherent disruptive potential of an emerging technology combination — renewables and battery storage — based on exponentially improving technology, and exponentially decreasing costs.
3. Fast and furious
Our third scenario takes the logic of disruptive innovation and extrapolates it forward to suggest an even faster transition process.
Stanford University’s Tony Seba, whose views were recently explored by the World Economic Forum, forecasts that the fossil fuel era will be fully disrupted by 2030, replaced by a new age of 100% solar power and self-driving electric cars.
He suggests that innovations in storage and increasing efficiencies in solar panels will create a self-reinforcing feedback loop, intensifying the three trends described here.
Seba’s views are corroborated by those of futurist Ray Kurzweil, whose predictions over the last two decades have often been surprisingly accurate. Although solar still only supplies 2% of global energy, it is now doubling its market share every 2 years — today’s 2% went up from 0.5% in 2012.
Kurzweil’s Law of Accelerating Returns posits that because new technologies improve by getting cheaper and smaller, they won’t grow at the same rate — instead they will grow exponentially.
There is some corroboration for these views.
A new report out from Deutsche Bank forecasts that distributed renewable energy provided via technologies such as rooftop solar and battery storage, will outstrip new centralised generation capacity additions across the world — as early as 2018. That’s next year.
This suggests that we are about to cross an irreversible tipping point into a new era:
If solar continues this rate of growth without impediments, it will take 100% market share in just 12 years.
Welcome to a new world
The implications of these scenarios are simply stunning. Based on the three core facts we identified early on…
Axiom 1: The economic model of fossil fuels is becoming increasingly cannibalistic
Axiom 2: Consumers are shifting away from fossil fuels with or without government incentives
Axiom 3: The technological and economic efficiency of clean energy is rapidly advancing, independently of oil prices and policy incentives
… the following conclusion arrives inexorably:
A great, global clean energy disruption is inevitable before 2050, without even factoring in government intervention.
The scenarios outlined here identify three potential pathways that various experts have modelled based on their own specific assumptions about the limitations and possibilities for change.
Despite their differences, they suggest that the force of the renewable energy disruption is wholly unstoppable. Efforts to stop or slow it, or to back out from involvement in it, can only ultimately backfire on those who refuse to accept reality.
It means that for consumers, households, entrepreneurs, investors and — yes, of course, even governments — there is now opening up an unprecedented opportunity to become players and beneficiaries of this great disruptive transition that is now unfolding.
The manifold impacts of this disruption on all areas of our societies — from transport to infrastructure, from smart grids to the Internet of Things — will generate massive openings for social, political and economic transformation. Along the way, the old paradigm of centralised fossil fuel dependence will wither away.
It also means that the associated economic paradigm of endless material growth based on abundant supplies of fossil fuels is bound to disappear. It is unlikely to do so quietly.
But as it does so — and it will disappear well before the close of the 21st century — there will inevitably be all sorts of upheaval, chaos, disillusionment and denial.
Whole industries and supply-chains will require overhaul. Some — like fossil fuels — will eventually collapse, taking many other intertwined old industries with them, with devastating impacts on the economy as we know it. But in their place, the potential for new industries which operate along new economic models in parity with environmental boundaries will keep growing.
And as this battle between the old and new worlds escalates, efforts by the guardians of the old order to stall, rollback and co-opt the decentralising economic momentum of the clean energy disruption will intensify.
The fossil fuel incumbency will fight back. And neoliberal financiers will attempt to exploit the emerging energy disruption to consolidate new mechanisms of control and profits for the few.
Yet the seeds of the new world have already been planted, and as we move into the next century, those seeds will blossom.
To be sure, the pathway to this future will not be smooth. Regulatory hurdles, political inertia and sheer disbelief in the speed and impact of disruption will remain.
But the disruption is well underway, and it is now unstoppable. That’s why we need to be ready to act.
Those ready for a rapid adaptation — and who see the potential to ride the wave to begin dramatically redesigning our social, political and economic structures in service to people in planet — will have a tremendous advantage in this race to the future.
Those who insist on ignoring, resisting or opposing the disruption will be left behind.