Energy Transition – December 2016

State of The Transition, December 2016: As fossil fuel diehards take over The White House, the evidence of a fast-moving global energy transition has never been clearer Jeremy Leggett, January 3, 2017 As captains of the fossil fuel industries and their lobbyists prepare to take over the White House – appointed by a President elected by a minority, claiming to represent the people on an anti-elite ticket yet possessing by far the highest cumulative wealth of any cabinet ever – they will face evidence breaking out all around them of a fast-moving global energy transition threatening to strand the fossil fuels they seek to boost.

“World energy hits a turning point”, a Bloomberg headline read on 16th December. “Solar power, for the first time, is becoming the cheapest form of new electricity,” the article marvelled. Analysis of the average cost of new wind and solar in 58 emerging-market economies – including China, India, and Brazil – showed solar at $1.65 million per megawatt and wind at $1.66.

Google leads the giant corporations eagerly going with this flow. The largest corporate buyer of renewable energy announced on 6th December that it expects to hit its target of 100% renewable power in, wait for it, 2017. Google is a huge consumer of power, and going solar means deep emissions cuts, especially when solar infrastructure is hooked up with all the digital efficiency-enhancement fandangoes that Silicon Valley giants are zeroing in on in the fast emerging era of artificial intelligence in an internet of things.

Google’s emissions reductions will be meaningful even considering full product life cycles. Solar panels made today pay back the energy used to make them in little more than a year, a Belgian research team from the University of Louvain reported in December. “For every doubling of installed photovoltaic capacity”, Atse Louwen and his colleagues write, “energy use decreases by 13 and 12% and greenhouse gas footprints by 17 and 24%, for poly- and monocrystalline based photovoltaic systems, respectively.” This means that solar panels now return more energy than American oil: an average energy-return on energy-invested of around 14 (and rising) versus around 11 (and falling).

This is excellent news not just for rich Californians but for the developing world, where “solar lanterns and rooftop photovoltaics are becoming the energy of choice”, so Bloomberg reported. In India, “the millions not connected to the grid may never connect” now, dooming much coal to be stranded underground in the process. The cumulative market of new Indian households accessing small-scale energy is potentially 200 gigawatts, with only a tiny fraction currently served.

In Myanmar the government needs no further persuasion: it announced plans to bring solar to all as soon as 2030. The technical advances in batteries and electric vehicles also became ever clearer in December. “Diesel faces global crash as electric cars shine”, the Financial Times announced. According to a UBS report, this whole category of oil use will be gone from the global market within ten years.

The positives of EVs synergise with the negatives of air pollution to create a perfect storm for diesel. At the C40 cities summit, Paris, Mexico City, Madrid and Athens all vowed to ban diesel vehicles by 2025. In China, the worst air pollution this year put 24 cities on red alert, with schools shut and flights grounded. Half a billion people were affected by this “airpocalypse”. In Chengdu, protestors took to the streets, putting smog masks on statues in the city centre. A heavy handed response by the police suggested that the government is super-sensitive to this issue.

Which is not to say that the Chinese authorities aren’t trying to abate the problem at source. I have summarised their rapid advances in renewables in earlier monthly reports. This month, a presentation in London by Zhang Gang, Counsellor of the State Council of China, revealed that China’s efforts to use electricity more efficiently, cutting the need for coal, now involve 317 million smart meters in operation across 100% of urban areas and 70% of rural areas. These are hooked up in smart co-ordination, spanning all aspects of grids, at all scales, in a vast project involving 230 million users. Part of this co-ordination involves China’s first expressway fast-charging EV network, stretching for 1,262 km between Beijing and Shanghai.

No other country comes remotely close to this kind of smart-grid deployment. On 12th December, the International Energy Agency issued a report concluding that China’s coal fired power plants “make no economic sense”. Small wonder.

India is on a similar rapid transition path. On 12th December the Central Electricity Authority announced that India does not need more coal-based capacity addition until 2022. The Authority now plans for non-hydro renewables to meet 43% of electricity as soon as 2027. Such an ambition would have been inconceivable until recently. On 20th, Bloomberg analysed the widening gap between projected and actual demand in the world’s third largest emitter, and put their conclusion in an encouraging headline: “India’s energy forecasts are falling short and climate could win.”

What are investors to make of all this? Well, it is rare for a report to hold the potential to change the world. But one published on 14th December did. The Recommendations of the Task Force on Climate-related Financial Disclosures (TCFD) aim to give investors, lenders and insurers visibility of how climate-change risk will affect individual businesses, and a roadmap for reacting to it. The report presents the results of a year of deliberations by 32 representatives of companies with market capitalisation of $1.5 trillion and financial institutions responsible for assets of $20 trillion. Their intention is for the capital markets to behave consistently with the aims of the Paris Agreement on climate change, which is to say progressively retreat from fossil fuels, and increasingly favour clean-energy investments, not least renewables………..

How has Big Energy coped on the transition frontier as 2016 came to a close? Two snapshots. The utility industry continues to be split into companies seeking to defend the fast shrinking status quo, and those now rushing to be part of the new world. One of the latter, Engie (formerly GdF Suez) announced that it sees the oil price falling to $10 as a result of current trends in energy markets, and the wave of clean-energy investments it and other major corporates are making. That would be interesting, should it transpire. For example, on 1st December BP gave the green light to a $9bn investment in a deepwater oilfield, rather appropriately named Mad Dog 2, due onstream (cue laughter, based on the industry’s record of delivering major projects on time) in 2021. Good luck to them in recouping their investment if Engie’s view of the world comes to pass.

My conclusion, as the new year begins, is that the global energy transition is progressing faster than many people think, and is probably irreversible. Trump’s prospects of resurrecting coal, and giving the oil and gas industry the expansionist dream ticket most of it wants, are very low.

There is a caveat, of course: that he doesn’t manage to blunder into a world war. All bets would be off then.

In 2017, I will consider this wider security question in my summaries, plus the issues of cybersecurity and fast-emerging artificial intelligence and robotics. For they have all now become clearly relevant to the ultimate outcome of the great global drama in the energy-climate-data nexus. http://www.jeremyleggett.net/2017/01/state-of-the-transition-december-2016-as-fossil-fuel-diehards-take-over-the-white-house-the-evidence-of-a-fast-moving-global-energy-transition-has-never-been-clearer/