Originally published on CleanTechnica
by Zachary Shahan
The executive director of the International Energy Agency (IEA), Fatih Birol, was on a Global Action Day panel last week in Abu Dhabi and he made his usual pitch for what Obama basically called an “all of the above” energy strategy. For countries, companies, and organizations that have large investments in fossil energy, this seems to be the popular approach — highlight the angelic nature of renewables and their sudden cost-competitiveness and growth, but then throw around some claims that we still have to accept the energy rapists amidst us and engage in a moral Macarena while we push forward with continued fossil energy growth*. That’s a misleading pitch, in my humble opinion, and it’s all about protecting certain investors and economic interests rather than protecting future generations and providing insight into smart 21st century investment choices.
The panel discussion almost slipped by, disappearing into a haze of loosely remembered pitches for common energy conference talking points. I had heard all of this before and it was old and spineless on Day 1, so it certainly wasn’t a stimulating sales pitch on Day 3,000.
However, two clean energy stats highlighted close to each other in Birol’s time on the mic jumped out at me. He emphasized that over 50% of new global power capacity came from renewables in 2016 (and the same was the case in 2015), but then a few moments later, in response to a question from moderator Michael Liebreich, he noted that only 16% of the $1.8 trillion invested in energy globally in 2015 was invested into renewables. Wait, what? …
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First of all, it needs to be acknowledged that there’s a notable conflation in topics here — the first figure concerned electricity generation capacity but the second one included energy for transportation (primarily oil) as well as electricity. Oil investments for transportation purposes are a gigantic portion of total energy investment, so the point of highlighting these two figures isn’t to pretend they come from the same pie. Based on 2015 figures, renewables must have represented 42% of energy investments. Still not >50%, but not as dramatic as 16%.
Nonetheless, the wide gap in investment figures versus new capacity figures was striking — cheap renewables dominate new power plant installations, but polluting fossil fuels dominate energy investments**. It was pretty shocking to me to hear, in the face of renewable cost-competitiveness and the looming Tesla Model 3 (which represents EV cost-competitiveness plus dramatic consumer benefits), only 16% of 2016 energy investments were in renewables. As Birol and Liebreich pointed out, the world needs to double its investments in renewables in order to hope to keep global warming below 2°C, which is seen by the scientific community as absolutely critical for humanity and maybe not even adequate.
This feeds pretty perfectly into my article last weekend about the totally insane carbon bubble. Money is flowing into pollution assets that are generally becoming less competitive or are already uncompetitive, assets that will almost certainly be stranded before the end of their “investment life” (the period during which investors expect them to make money).
The “all of the above” pitch highlighted at the top is hollow, because the future isn’t “all of the above.” But in case that still isn’t clear, I’ll keep typing.
Several years ago, the following charts regarding the coming competitiveness of solar power were some of my favorites because they highlighted that investing in a new coal or nuclear power plant didn’t really make any sense.
As you can see, the point made in those charts was that projected solar costs for 2020 were lower than the projected cost of nuclear or coal power plants completed in 2020 (started 6–13 years earlier). In other words, investing in a new coal or nuclear power plant in 2012 was illogical, since the plant wouldn’t be cost-competitive by the time it was completed and opened.
Actually, solar costs have come down much faster than expected back in 2012 and are already below the 2020 projection (an unsubsidized US estimate of 4.6¢/kWh to 6.1¢/kWh rather than the projected 7¢/kWh), with some projects outside the US even below 3¢/kWh.
Data by Lazard. Chart by CleanTechnica | Zachary Shahan.
What does this mean? It means a few things.
We’ve already seen new coal plants open that are expected to be some of the first and most expensive stranded assets, and major utility Florida Power & Light (principal subsidiary of NextEra Energy) has already bought relatively new coal power plants simply to shut them down and get out of long-term power purchase agreements. In other words, to simplify: Yes, the solar charts above nailed it — coal was a stupid investment from 2012 onward.
Coal is now being thrown under the bus by natural gas producers who are happy to give this dirty energy source the moral boot while pretending natural gas is a “clean” and “competitive” power option, but how long can those oil & gas giants spin the message that natural gas (or oil, for that matter) deserves investment?
The argument is apparently still effective for many investors, but the trend is clear and it’s hard to think of a more incorrect and overly hyped claim than “we need more fossil fuel power plants.” Nuclear is down and out. Coal is down and out. And natural gas is next in line for an early retirement. Investments flowing into the gas sector are probably convincing certain investors that natural gas is still in the game, but 2.99¢/kWh solar, 2.91¢/kWh solar, 2.42¢/kWh solar, and 2¢/kWh wind are waking the early movers and shakers enough that I think a mass exodus from “all of the above” energy is around the corner.
If renewables are cheaper and dominating new installations in the electricity sector, and if electric cars are becoming more competitive than gasmobiles***, the point is that the future is in renewables and electric vehicles more than in polluting fossil fuels. So, why isn’t investment in renewables already greater?
Again, the signs of a growing carbon bubble keep popping up — I have a feeling it’s going to be a CleanTechnica theme of 2017. The core question is, when will Big Money get so concerned about stranded assets that it’s going to start popping this bubble? Aside from inertia, short-term thinking, and misinformed analysis, I can’t see why anyone would be investing in dirty energy assets right now. If I had money in fossil fuels, I’d be sweating that it could disappear overnight. I’d be looking at the growing bubble and telling myself it’s time to fly. But hey, that’s obvious — I wasn’t part of the massive investment in fossil fuels in 2016.
Perhaps I’m the one who doesn’t understand how to invest, but “fossil fuels is where the smart money’s headed” seems like something you’d hear from a con man in 2017. Investing in fossil fuels today seems about sane as investing in Blockbuster in 2009, investing in Kodak in 2010, or investing in the Spice Girls in 2010. Sure, if you’re David Beckham, you might end up okay, but most of us aren’t David Beckham.
Approximately 84% of global energy investments being in non-renewables in 2016 is, to me, a sign that the carbon bubble is still growing, but it’s also a giant Post-it note telling investors that it’s time to shift focus and put money into the future … if they want the future to be kind to them.
*Clearly, I’m not fond of the pitch — yes, rapists, murderers, and saints are all humans, but I’d rather encourage the latter and try to stop cultivating the former.
**Global clean energy investment was actually down 18% in 2016 … but that’s in large part because renewables got cheaper, and overall renewable energy capacity growth was still actually higher in 2016 than in 2015.
***Something you might assume when you consider that the Tesla Model 3 brought in a stunning 400,000 or so reservations … but you might not assume if you look at non-Norway market share of electric vehicles.
Photo by IRENA (some rights reserved)