2017 is the year when all energy eyes will be on OPEC and the US, but that will miss the beginning of the broader conversion from 20th century to 21st century energy. The incremental growth in energy demand will be mostly consumed by scalable solar and wind technologies, forcing existing fuels into long-term decline.
Centuries may not get into their stride for a decade or two.
This blog assumes that there is a major energy transition underway: from a 20th century model to a 21st one, from a giant-size but inflexible, extractive and stand-alone system, to a more scalable, manufactured and grid-connected version.
Now, with its sixteenth year about to close, maybe this century has had enough time to show itself in terms of the start of this conversion.
On that basis, we will briefly look at three large-scale themes in the energy world, and see how they played out in 2016 – and what that might mean for 2017 and beyond:
• Incremental Growth versus Total Supply,
• The Relentless Rise of Scalable Technologies, and
• The Manufacturing of Global Energy
Incremental Growth vs Total Supply: How Change Happens under Your Nose
The way we view the world informs our actions: when oil companies “make predictions, they shape rather than reflect reality”, as an RSA note from last December concluded.
Given this, the two charts below from the hugely impressive work of Kingsmill Bond of Trusted Sources show two predictions, using the same data, but reflecting two different energy world realities. It is potentially the most enlightening set of diagrams from 2016:
In the left hand chart nothing much changes, energy-wise, from 2010 to 2020. The world of energy supply is dominated, as it has been for over a century, by fossil fuels. The thin topmost line is the emergence of high-growth renewables, but it seems an arithmetic afterthought, and of limited impact.
The right hand chart changes everything. It’s the same data, but focusing only on change, not total supply. Fossil fuel growth collapses from 2010 to 2015 and then tends to zero by 2020. Meantime, high-growth renewables grow to over 50% of new global energy supply by 2017-18, and over 80% by 2020.
How come so quickly?
Well, here is a key distinction between energy in the 20th and 21st centuries: global energy demand growth in the 20th century was about 3%pa – in the 21st century demand is about 1% pa and assumed to stay at this rate or decline. The build out of investment and infrastructure is largely complete in the OECD nations, and also in China, and improvements in energy efficiency have moved to outpace GDP growth.
Which explains why high-growth renewables such as solar and wind have suddenly captured so much of the world’s energy capacity growth – those growth requirements had slowed considerably just as solar and wind became available and affordable in utility-scale quantities.
Not only that, the nations who are driving 21st century energy growth, notably China and India, are rich in land and sun for wind and solar development. More importantly, they need to avoid imported fossil fuel dependence for two vital reasons: energy security and severe urban health issues from pollution. Hence, in 2015 China became the first nation on earth to spend over $100bilion on renewables in a single year.
Latest IEA data on new solar and wind and other renewable capacity growth confirms the incremental growth picture – in 2015 renewables overtook coal in total global capacity installed and contributed over 50% of net new capacity growth.
The energy reality in 2016 and beyond lies in the power of the incremental growth curve, and it may re-shape predictions.
The Relentless Rise of Scalable Technologies: The Ability to Make Energy in Every Size
Its worth reviewing that IEA statistic on renewables and coal once more, and put in into historic context.
After well over a century of deployment, by 2015 there was 1,950GW of coal power capacity installed globally.
In less than half a century, solar, wind, hydro and nuclear the total had delivered 1,985GW of installed energy.
And in the past 15 years solar and wind have grown to a total of 660GW, with estimates for 2020 of installed capacity of 1,400GW. Wind and solar alone could surpass global coal capacity in the next 5-6 years – creating enough aggregate generating capacity with hydro and nuclear to power the US and Europe.
This global picture can be reduced down to country level to make this profound change in energy development clearer.
Irrespective of the environmental benefits of solar and wind, they are potentially a game-changer in global energy generation due to their fundamentally different nature.
They are not fuels dependent on large-scale extraction projects and substantial-size thermal power plants – they are manufactured and scalable technologies. This seemingly obvious point has huge consequences for how the energy is developed and delivered.
A Carbonbrief chart below of UK energy annual capacity additions from 1960 – 2015 illustrates the history of the island’s energy development.
There is much history in this chart. The rise and fall of the UK coal industry created major political and industrial confrontation in the 1970s and 80s as the fuel lost out to nuclear, and then gas. And the complexity, cost and safety issues that nuclear brings has caused its development to be hesitant and intermittent with only a handful of projects ever sanctioned – Hinkley B is just the latest example of how fraught nuclear energy deployment can be.
The implementation of solar and wind is literally of a different order. Compare the emergence of energy from wind and solar with that of the other fuel-based sources.
Since 2005 wind and solar have delivered 25GW of UK energy capacity. Underlying this is over 30 medium-large scale onshore wind farms and over 600 small to large utility-scale solar projects.
All these solar and wind projects are relatively small in capacity compared to thermal plants of course, but their absolute numbers are almost a hundred times higher. And the aggregate capacity additions are rapid as a result: since 2005 they have added on average 2.5GW capacity pa.
Remember, a large nuclear or gas plant is about 1GW capacity – so these annual numbers are very substantial (even with capacity factors). Solar and wind are adding a 1-2 nuclear plant capacity every year at current rates.
Compare this with the ratios for coal (0.92GW pa over 20 years), nuclear (0.35GW pa over 25 years) and Gas (1.45GW pa) over 20 years.
Wind and solar’s scalable technology allows small energy additions to be made relatively quickly from a project technology point of view, and from a local and regional approval requirement.
This may change as land constraints are considered. But as costs continue to fall as capacity increases wind and solar make an increasingly attractive investments. In the period 2010-2014 IRENA (the renewable energy industry body) estimate that solar costs reduced by half to about $30-50/MWh – competitive (without subsidies) with efficient gas and coal plants.
And consider – these are manufactured, scalable technologies, so the costs will continue to drop significantly as deployment expands, and the performance in terms of capacity factors and efficiency will equally improve.
We are used to a narrative of large, expensive, difficult projects to get to our energy, and we fear the reliance on solar and wind as these are intermittent and relatively unknown. Locally manufactured energy in this way remains alien.
But 2016 allowed solar and wind technologies to mature and expand by yet another year of rapid growth, and continue down the manufacturing cost curve.
Relentless supply, as the IEA have it.
The Manufacturing of Global Energy: How a Planet becomes an Energy Factory
India has about 3% of the oil resources of Iran, but it has 100% of the irradiation intensity from the sun as the Middle East.
To avoid generations of import dependency on oil and gas, India has started to embrace solar energy in a big way. And big means in 2016 building the world’s largest solar plant at Kamuthi in the south-eastern region of Tamil Nadu.
It took only 8 months to build with mainly local firms and management, and cost $1000/kw for a nameplate capacity of 650MW. Even with capacity factors taken into account that is cheaper than new thermal coal plants for generating electricity. And, to reiterate the point, costs continue to fall.
Whilst solar and wind have limitations in terms of intermittency, their strengths of global endowment and manufacturing experience curves seem to far outweigh these constraints.
This might seem theoretical, but Katmuthi shows solar and wind power long ago left the laboratory, and are starting to produce world-scale, locally deployed and zero-carbon energies. The IRENA database notes over 15,000 current utility-scale wind and solar projects.
This vast number, about 100 times more than current major fossil fuel projects, is viable for three core reasons: the scalability of the technology, the relatively easy ability to share manufacturing know-how and materials, and the global endowment of solar radiation.
A simple matrix below shows how this new form of world-scale energy sits alone from previous ones.
It is a manufactured entity, and the whole planet has access to the primary energy source, whether wind or daylight. Even though some countries have less of these resources than others, the muscle of manufacturing know-now, and global dispersion of solar and wind technology creates a global factory able to produce local energy at increasing scale, and decreasing cost.
2016 marks a year where the increasing size and scale of solar and wind linked to the law of large numbers. Whilst their high growth rates of 20-25%pa will start to decline as the installed capacity grows, their increasing scale will also ensure the momentum of current projects will drive growth for the coming years regardless of new policies or fossil fuel pricing.
Major milestones will soon become apparent. It is almost certain that by 2018 or 2019, due to momentum growth, global electricity demand for fossil fuels will start to decline, as renewable energies displace them from the world’s energy grids – see chart from Trusted Sources.
The scalability of the new energies also means that the quality as well as quantity of electricity will change. It will be more amenable to small grid and dispersed solutions, allowing electricity access for over 1.5 billion people that the century-old energy system we currently have is unable to reach.
2017 – 21st Century Energy Gets Underway
Two energy systems, from the 20th and 21st century, will start to engage in depth from 2017 onwards, and the changes will likely be profound.
This century’s gradual assimilation of solar, wind and electric storage energy to scale and deployment via accretive know-how, and ever-declining costs of wide-spread technology is almost the anti-thesis of the 20th century energy industry, which is based on giant concentrated endowments, complex extraction and custom-engineered supply chains.
Some countries such as China have now had to start to deal with over-capacity of energy, where once they had assumed energy deficits. This has caused them to reduce short-term targets for wind and solar deployment (although growth over the next five years remains at over 20% pa), and to consider more urgently how to manage exits for incumbent industries, mainly coal.
Overcapacity in the EU will continue to disrupt utility markets: Germany has already seen these changes, the UK and other mature markets will also start to undergo major restructuring.
Indirect energy competition will also start to emerge from large-scale auto manufacturers who begin to release their mainstream electric vehicle (EV) models on to the general market, removing growth from one of the principle drivers of fossil fuel demand and challenging the spot fuel price commercial model.
Incumbents will react in various ways – OPEC’s recent moves to restrict oil and gas supply, while primarily a short-term solution, is an example of actions to come. The reaction of international oil firms is harder to gauge – 2017 will likely be a year where they diverge and begin to transform, or dig in against change.
And governments, such as the US, may act by attempting to protect indigenous local fossil fuel firms – but this will be complicated as fossil fuels typically compete against each other, and, especially outside the US, the renewable energy lobby has gained significant presence and resources.
In 2017 onwards two different energy worlds start to collide in very important ways.
As Liam Denning from Bloomberg Gadfly observed recently:
“To put it another way, the couple-dozen countries now trying to juice oil prices in a decidedly 20th-century fashion are facing off against something that looks much more 21st century: a growing network of thousands of companies — ranging across oil, autos, utilities, chemicals, and software — competing with and learning from each other.”
Happy New Year Everyone.