Renewables in future energy mix heavily underestimated: new report

Future fossil fuel energy demand may have been heavily overestimated and renewables growth underestimated, a new report warns investors.

The financial initiative Carbon Tracker has just released the report Lost in Transition: How the energy sector is missing potential demand destruction, which tackles many assumptions made so far from different mainstream analysis.

Such estimates are than used as a base to justify new investments in fossil fuels – but they have underestimated the role of renewable energy in the energy mix, the report claims.

A striking example of the difficulties in foreseeing the long-term evolution of the energy sector is the exponential boom of clean energy – in particular solar energy – that just 10 years ago seemed unthinkable.

For instance, expectations from the International Energy Agency from 2000 to 2007 were of a maximum 20 gigawatts (GW) of installed solar capacity globally by 2014, yet last year we reached almost 180 GW.

It is important to underline that such assumptions are based in turn on a complex net of political, economic and social expectations; when a social policy is implemented or an economic breakthrough happens, assumptions can be deeply altered.

The dramatic fall in the costs of renewable energy – particularly solar – and the political will to shift the global economy toward a low carbon future exemplified by the Intended National Determined Contributions (INDCs) for the climate negotiations in Paris, are just a couple of these triggers for change.

However, the fossil fuel industry still justifies the need for investments in the sector by assuming coal, oil and gas use is growing by 30 per cent- 50 per cent and still making up 75 per cent of the energy supply mix in 2040.

Such assumptions don’t account for the huge potential of renewable energy and the socio-political shift to keep fossil fuel in the ground that we are witnessing today, states the report.

Population and climate

In particular, the paper challenges the assumption that global population will increase to 9 billion by 2040, as stated by mainstream analysis. A larger population means a higher consumption of energy, but linking population to climate modelling reveals that this number could be 8.3 billion by 2050. In a ‘low population growth scenario’ coal demand is a quarter lower than the high population scenario.

China has already started to leave behind its coal dependence, announcing it will peak its CO2 emissions by 2030 – and much analysis brings this date forward still.

Coal demand in the country fell by 2.9 per cent in 2014 and 5.0 per cent in the first half of 2015. With falling costs of renewables and the high costs of fossil fuels, a structural change is underway in China and beyond.

Fossil fuels are not the best solution for fast-growing developing countries, because of the cost of expanding the existing grid – or building a new one, as is the case of rural Indian villages – and of importing coal from other countries.

As The Climate Group’s project Bijli – Clean Energy for All has shown, distributed solar power is a cheaper, cleaner and more reliable source of energy for millions of people who even today must stop their activities at the dusk.

Economic growth

The global gross domestic product (GDP) is expected to rise as much as 3.6 per cent by 2040, according to leading analysis. But the recent slowing down of the Chinese economy – the growth of which had been exponential, but also generally overestimated – demonstrates once again how such long-term expectations are complex to forecast and tied with many other assumptions.

The OECD, for example, sees global GDP grow at 3.1 per cent; a difference that, once again, would lead to a much lower energy demand.

Moreover, last year pollutant emissions and economic growth started to decouple for the first time ever when global CO2 emissions stalled while the global economy grew 3 per cent. This demonstrates the case many leading economists have been making for years: that low carbon investments are starting to bend the emission curve and the cost of inaction on climate change greatly exceeds the cost of action.

Another important point raised by Carbon Tracker is the growing momentum around reducing energy intensity, which is increasingly being heralded by both businesses and governments. With technologies becoming more and more efficient and structural changes in many countries, energy intensity has the potential to fall much more rapidly than estimated.

Low carbon growth

The economic move to a low carbon future is showcased in the INDCs submitted so far, which together can lead to a cumulative reduction of CO2 emissions to 2030 up to 100 gigatonnes CO2 less than in the scenarios generally accepted. The rapid growth of solar and wind in China is also helping bring renewable technologies to scale globally – today renewables are already cost-competitive in several countries – earlier than forecasted.

China’s case is just one of the many disruptive shifts that challenge current energy models. Recent and incoming technological breakthroughs in energy storage, decentralized renewable generation and communications technology are completely changing how we relate to power.

This is why leading companies from around the world have joined The Climate Group’s project RE100 in partnership with CDP to go 100 per cent renewable: it saves them money saving energy, it gives them energy security and allows them to be at the forefront of current and future markets.

Authors also point out that stringent fuel efficiency rules implemented by many governments can lead to a lower than expected energy consumption, intensified by the boom of electric vehicles all around the world – driven once again by the fast advances in technology.

The report is a stark reminder for investors that low carbon growth may have been heavily underestimated, so companies must prepare today for the economy of the future.

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