the new energy revolutiondata.oireachtas.ie/ie/oireachtas/committee/dail/32/... · slow, and...

The new energy revolution Slides for the submission to the Joint Committee Kingsmill Bond June 2017

2 Copyright © 2017 TSL Research Group Limited 2016. All rights reserved. www.tslombard.com

Index

• IEA forecasts p3

• Fossil fuel company forecasts p4

• Coal and electricity demand p5

• Solar, wind and battery costs p6

• Marginal change in history p7

• What is the new energy revolution p8

• When does fossil demand peak p9

• Peak cars p10

IEA forecasts

• The work of the IEA is excellent in many respects, and it is the most widely used resource for the forecasting of future energy demand and supply.

• However, its expertise lies in the fossil fuel sector, and it has consistently failed to forecast the rise of renewables. For example, the 2000 IEA forecast for 2015 solar capacity was 6 GW; in 2010 the forecast was 70 GW. In reality there were 226 GW of solar installed globally at the end of 2015.

• The IEA tends to use cost data which is high, assumes cost falls which are slow, and forecasts flat installation volumes. In the medium-term renewable energy market report released at the end of October 2016, the IEA once more argued that we have hit peak renewable installation.

Source: IEA medium-term renewable report 2016 Source: IEA

IEA projected capacity installation GW

IEA forecasts for total solar capacity 2015 GW

Copyright © 2017 TSL Research Group Limited 2016. All rights reserved.

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Fossil fuel company forecasts

• The energy sector officially does not expect a tipping point (the moment where fossil fuel demand peaks) for another few decades.

• The key points of difference between the oil sector forecasts and reality are:

– Solar and wind costs and growth rates. They forecast low growth

– Global energy demand growth rate. They forecast high growth

– Battery costs and the EV growth rate. They forecast low growth

• The oil and gas sector (like fixed line telephony, electricity, or coal before) does not appreciate the disruptive impact of a shift from growth to stagnation.

Solar and wind future supply

growth CAGR Years to the tipping point

Source: Exxon, IEA, BP, Shell, Statoil, WEC, OPEC, TSRP estimates Source: Exxon, IEA, BP, Shell, Statoil, WEC, OPEC, TSRP estimates


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Tipping points create disruption

• Markets are moved by change, not by size, and typically disruption occurs as demand growth slows to zero. The shift from growth to decline creates stranded assets, overcapacity, falling prices and radical sector reshaping.

• Coal prices and stocks collapsed as coal demand growth slowed. And in spite of the fact that the world is still using billions of tonnes of coal.

• The European electricity sector was transformed when demand stagnated and renewables kept growing. Incumbents were left owning stranded thermal assets in an environment of low prices. Demand for thermal electricity peaked when renewables were just 3% of the total.

European electricity supply (TWh) Coal demand (mtoe)

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

-

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015

Thermal Nuclear and hydro Solar and wind

Source: BP Source: BP


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Drivers of the revolution: Costs

• The cost of electricity from solar and wind has fallen extremely rapidly such that it has become comparable with the cost of electricity from fossil fuels, where the levelised cost of energy (LCOE) is $50-80 per MWh.

• The cost of batteries has fallen so fast that electric vehicles are becoming cost comparable with petrol vehicles. The comparable battery price is $100-$200 per KWh and the industry leaders will be below $200 this year.

• Costs will continue to fall as a result of the learning curve, a shift to better locations, and best practice dissemination.

Source: Lazard for US utility LCOE low end

The cost of Li-ion batteries $/ KWh

Source: US Department of Energy actual and targets, Tesla

The cost of electricity generation LCOE/ MWh $


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Marginal change has a rapid impact

• Taking the example of energy changes in the UK at the start of the twentieth century, a clear picture emerges as steam gave way to electricity in power generation, as coal moved to oil in transport, or gas shifted to electricity in lighting.

• In the lighting market: demand for electricity grew in spite of the huge infrastructure costs.

• Gas demand for lighting peaked in 1914 when the share of electricity was only 3%.

• Gas demand for lighting started falling even though the average gas price was higher than the average electricity price for another 6 years.

• As soon as electricity prices were lower than those of gas, demand for gas collapsed.

The price of lighting in the UK Energy demand for light in the UK (mtoe)

Source: Fouquet Source: Fouquet


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The new energy revolution

• Fossil fuels are being replaced by renewables in the global energy mix.

• The key energy transformation comparable with this was the replacement of biomass by fossil fuels two centuries ago.

• In the modern era the change is happening much faster because the world is globalised, and renewables are everywhere.

• Energy is a ‘foundation’ technology upon which is built the modern world. Changes to the foundation matter.

Source: Smil, BP

Split of global fuel sources 2000-2100

Source: BP, IEA, TSRP estimates

Split of global fuel sources 1800-2000


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Fossil fuel demand will peak by 2020

• Three primary assumptions need to hold for renewables to push fossil fuels out of the energy complex by 2020.

• Global energy demand (13,000 mtoe) to grow at 1%, which is a little higher than in 2015, and the long term growth level forecast by the IEA New Policies scenario.

• Solar and wind supply (250 mtoe) to grow at 20% a year, which is around current growth rates and is pretty much locked in until 2020.

• Hydro, nuclear, biomass and geothermal supply (1,600 mtoe) to grow at 2% a year, which is a longstanding average growth rate.

Incremental energy supply mtoe Share of incremental energy supply

Sources: BP (up to 2015), TSRP estimates.

0%

20%

40%

60%

80%

100%

2001 2004 2007 2010 2013 2016 2019

Fossil fuels Hydro, nuclear, biomass Solar and wind

Source: BP, TSRP estimates


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The end of the ICE age

• EV sales are growing at around 50% a year. The shift of large parts of the global automotive sector into EV will maintain rapid growth.

• China is the global leader, with India waiting in the wings. China has already built two large electric vehicle markets – in ebikes and ebuses.

• At current growth rates, EV will supply all incremental global demand within 5 years.

• At the tipping point EV sales will be around 10 million, with a market share of 10%. They will be only 3% of the global fleet.

• Much of the oil industry is in denial about the shift.

Incremental car sales (m) Incremental EV sales at different growth

rates (m)

Source: TSRP estimates Source: TSRP estimates


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-0.5

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0.5

1.0

1.5

2.0

2.5

3.0

3.5

2016 2017 2018 2019 2020 2021 2022

EV ICE

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1

2

3

4

5

6

2016 2017 2018 2019 2020 2021 2022

20% 30% 40%50% 60%

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