Probably you’ve heard of “peak oil,” the theoretical point at which maximum pumping of the planet’s oil resources is reached and production begins to decline for various reasons, including rising extraction costs and shrinking reserves.
This is a passionately disputed conjecture, but there is one point of general agreement — the peak has been pushed well into the future by directional drilling and the other advances associated with hydraulic fracturing.
Then there’s “peak coal,” an even more fractious effort to apply the same sort of frame to dinousaur-based fuel in solid form; experts have never been able to agree within even a couple of centuries on when we might arrive at this milepost.
Now we have from the analysts at Bloomberg New Energy Finance a forecast of peak fossil fuel consumption, covering natural gas as well as coal and oil, and determined not just by production costs or available reserves but also by market demand.
And they think it could arrive in, oh, as little as nine years.
A big driver here is the continuing expansion of alternative, renewable energy sources, discussed here just last week in the context, mostly, of electric power generation and the latest analysis from the Renewable Energy Policy Network for the 21st Century, based at the United Nations Environment Programme.
BNEF takes a much broader look in its New Energy Outlook 2016, published Sunday, drawing on a wide range of business and economic data — from public sources — regarding the costs of all fuels and generating technologies (including storage), electricity demand, policy trends and “consumer dynamics.”
Its reports typically receive respectful coverage in the specialist press devoted to energy and climate topics, in part for their transparency and also the credentials of the analyst team.
Fossil prices held lower
A key assumption on the fossil side for NEO 2016 is a 30 percent reduction in predicted average prices for coal and gas through 2040, which should encourage their use. Another is not to count on the Obama administration’s Clean Power Plan surviving court challenges, or all the parties to the Paris agreement on carbon reductions to hit their targets. Nevertheless:
Cheaper coal and cheaper gas will not derail the transformation and decarbonisation of the world’s power systems.
By 2040, zero-emission energy sources will make up 60% of installed capacity. Wind and solar will account for 64% of the 8.6 terawatts of new power generating capacity added worldwide over the next 25 years, and for almost 60% of the $11.4 trillion invested.
Some key components of the outlook:
- Although world oil prices are likely to recover some, and U.S. prices for natural gas will be lifted by rising production costs, coal is a different story.
Seaborne coal … appears to be in structural decline. Coal prices have been falling since their last peak in 2011 and a combination of China’s economic slowdown coupled with developed country emissions regulations, carbon prices, cheap gas and India’s plan to develop its domestic resources leads us to conclude that coal prices will remain low.
- Although natural gas-fired power plants are still discussed as a necessary bridge from coal to renewables, BNEF thinks not so much.
In only a handful of countries do we see material uptake in new gas-fired power is a transition fuel. These include the U.S. where gas capacity grows by 97 gigawatts to 2040 — though the bulk of that happens in the years to 2030.
- Wind and solar power continue to get cheaper as development and installation costs fall and capacity factors — the percentage of theoretical output that is reached in actual use — keep rising. BNEF predicts that the cost of onshore wind power will fall 41 percent by 2040, and utility-scale solar by 60 percent.
Solar’s precipitous cost decline sees it emerge as the least-cost generation technology in most countries by 2030. It will account for 3.7 terawatts, or 43%, of new power generating capacity added in 2016-40 and for over $3 trillion of new investment. Small-scale solar makes up a bit more than a third of this new capacity.
- By around 2027, new wind and solar gets cheaper than running existing coal and gas generators, particularly where carbon pricing is in place. This is a tipping point that results in rapid and widespread renewables development. Repowering of existing wind sites also begins to make up a larger fraction of activity in Germany, Denmark, California and China, accounting for 43 percent of wind development by the early 2030s.
Growing power demand
- Electricity demand will grow worldwide by more than 50 percent by 2040, BNEF’s models suggest, with especially rapid growth in Asia and India; all over the world, a key driver will be a use that so far could be considered marginal — personal transportation. Only 1 percent of new cars bought today are electric vehicles, but
Over the next 25 years, light-duty electric vehicles will provide 2,701 terawatt-hours of additional electricity demand, to reach 8% of world consumption. Our modeling suggests EV’s will make up 25 percent of the global car fleet by 2040, putting continuous downward pressure on battery costs through technology development, economies of scale and manufacturing experience. Cheaper batteries increasingly bring small-scale and grid-scale storage options into play.
- While fossil fuels account for about two thirds of electricity generation worldwide today, BNEF sees them reaching peak use between 2025 and 2027, then falling to a 45-percent share by 2040, with coal’s share falling from 39 percent today to 27 percent in 2040.
We see wind and solar generation rising from 8% in 2015 to 32 percent in 2040 — with around five points of that behind-the-meter, small-scale solar. Overall, zero-carbon sources, including hydro, biomass, nuclear and other renewables, account for 56 percent of total generation in 2040.
So, what does all this mean for climate change? Well, the trend is in the right direction, but we are not out of the deep weeds by a long ways.
The rapid slowdown in Chinese electricity demand growth, weak demand signals from much of the developed world and increasing amounts of renewable energy in our NEO 2016 forecast have combined to slow emissions growth, reducing the abatement required to keep us on track for 2° C. …
To continue on this trajectory, however, we estimate that around 10 terawatts of zero-carbon power generation will need to be installed by 2040, representing a $14.6 trillion investment opportunity over the next 25 years.
This is 56 percent more new capacity than [predicted in the new report], which anticipates $9.3 trillion of new zero-carbon investment or around $373 billion per year.
* * *
The full NEO 2016 report is available only to subscribers, but an executive summary can be found here if you register.