Fossil fuel companies say demand for their products is growing and will continue to boom indefinitely. Renewable energy companies and electric vehicle makers disagree. Who’s right? Let’s break it down.
1. Solar and wind: Cheap and getting cheaper. Wind in America routinely contracts for two cents or less per Killowatt hour (kWh), and solar for less than four cents. Fossil energies like gas and coal can cost between five and six cents per kWh. Being technology-based, wind and solar will only get cheaper. Think of their price like that of your last few computers: more for less.
2. Growing at the speed of light—and wind. Solar is one of the world’s fastest growing industries. The global solar market has soared 30-fold in just nine years and in a record-breaking year, “new solar capacity rose 50% in 2016,” according to The Guardian.“In the U.S., one could say solar energy is dragging the rest of the economy along with it: “the industry already provides more Americans with jobs than oil and gas extraction does, and it’s growing at 12 times the rate of general job creation,” according to a report from EDF. Wind is booming almost as much. A four-year U.S. wind power forecast sees a quarter-million jobs and 35 gigawatts of new wind capacity in the United States by 2020.
3. Storage Wars: There isn’t enough energy storage to make full use of wind and solar, but that’s changing fast. Twenty one states have at least 20mw each of storage projects in service, under construction or proposed as “more U.S. states embracing batteries to store renewable power.”
4. No gridlock on the grid. The National Renewable Energy Lab, perhaps America’s leading authority on the subject, reports that “renewable electricity generation from technologies that are commercially available today, in combination with a more flexible electric system, is more than adequate to supply 80% of total U.S. electricity generation in 2050 while meeting electricity demand on an hourly basis in every region of the country.”
5. If oil and gas tank, the economy won’t. In recent years, oil and gas firms have gone from boosting U.S. GDP growth to reducing it, and current GDP-by-industry numbers show that oil and gas have continued to drag down GDP. Meanwhile, cheap oil and gas prices, combined with inexpensive renewables, are making most everything else in the economy far more productive and inexpensive. As celebrity investor Jeremy Grantham has written, “the consumers of both oil and natural gas account for far more of U.S. economic activity than the producers do. For consumers, cheap energy is good. So eventually, whatever drag the oil and gas industry’s troubles exert on the economy should be more than compensated for by gains in other sectors.”
6. The false natural gas trade-off. Yes, burning natural gas to make electricity releases less CO2 into the atmosphere than burning coal does, but the process of extracting, transporting and using natural gas releases far more methane into the atmosphere than does coal-- and methane is a far more powerful trapper of heat than CO2. In fact, many scientists think natural gas is worse than coal in global warming terms. "Methane emissions from fracked shale gas are horrendously high; so yes, it’s unequivocally worse for the climate than is coal," says Cornell University’s Robert W. Howarth.
7. Natural gas is the fastest growing energy in America—NOT! Natural gas is being outpaced by renewables 2-to-1. In 2015, solar and wind together represented 69% of new electricity generation capacity additions in the U.S.
8. No hoax: GHGs and warming threaten the economy. In fact, warming and climate change are now cited both as being and causing the most serious global economic risks we face by such groups as the World Economic forum at Davos, Switzerland and the European Systemic Risk Board, who warns of a global economic “contagion” if the move to a low carbon economy happens too slowly or too late.
9. Electric vehicles will displace internal combustion. According to Forbes, “the future is indeed electric, but if [gas engine car] manufacturers refuse to face the music, they may not be around for much longer. Bloomberg New Energy Finance, for instance, predicts that by 2040 the electric vehicle market will hit 41 million cars sold, “representing 35% of new light duty vehicle sales.”
10. Corporations care about using renewables. Apple and Google/Alphabet, the world’s two largest publicly traded companies by market capitalization, have both committed to power all their operations with renewable energies. And it’s not just these two. As one recent headline has it, “Renewable Energy Demand Among Fortune 500 & 100 Companies Growing Quickly.”
It’s hard to see where an increase in demand for fossil fuels can come from. The transition to a global economy powered by wind and solar is no longer a theoretical revolution, it’s now demonstrably underway. For investors, it has become dangerous to think of fossil fuel stocks as the same source of safe risk-adjusted returns they have been in past decades, and perhaps equally dangerous to assume that stranding of fossil reserves is a process that will take decades into the future.
Garvin Jabusch is CIO of Green Alpha Advisors.