Clean energy set to squeeze fossil fuel demand as ‘the electrification of everything’ continues

The good news keeps arriving in terms of the move to a Net Zero, New Normal economy.

Not only are Electric Vehicles (EVs) accelerating rapidly up the S-curve of adoption, as discussed last week. But renewables are now set to become the world’s largest source of electricity supply by 2025, according to a new Report from the International Energy Agency:

“Renewables and nuclear energy will dominate the growth of global electricity supply over the next three years, together meeting on average more than 90% of the additional demand.”

And as Carbon Brief note, major new nuclear construction in China and India, means that:

“Clean energy sources will outpace growth in global electricity demand, squeezing out fossil fuels in the process.”

As with EVs, this development highlights the failure of most forecasters to keep up with the pace of change. Our pH Report suggested back in June 2019 that:

“Renewables growth could start to out-strip electricity demand growth by c2024, causing fossil fuel demand to begin a rapid decline”.

But mainstream forecasters such as the IEA have continued since 2010 to assume growth would be linear, as the chart from Auke Hoekstra confirms.  Instead, it has continued up its S-curve.

Renewables were 20% of global electricity generation in 2010. By 2021, they supplied 29%  and are expected to supply 35% by 2025 – taking them above natural gas and even coal.

Unfortunately, this forecasting failure has led to major costs for many companies and investors:

  • They assumed ‘business as usual’ would continue, rather than preparing the investments needed to profit from the paradigm shift
  • Even worse, they are now losing money from bad investments made on the assumption that fossil fuel growth will continue forever

Not everyone has made this mistake, however. As the Reuters chart shows for Iberia (Spain and Portugal):

  • Despite a 1/3rd drop in hydropower generation last year due to the drought, a record 62% of their power now comes from clean sources
  • In 2022, more than 1/3rd came from solar and wind – twice the European average

The issue is simple – clean energy is not only better for the environment. It is also cheaper, much cheaper – as a new Report from Energy Intelligence confirms:

  • “Renewables retain their crown as the cheapest option for new power generation across the globe
  • The race for lowest cost remains mostly between solar photovoltaic (PV) and onshore wind”

One problem with fossil fuels is that they have to be replaced once they have been used.  Decline rates for mature non-OPEC fields average 8%/year. And so costs are always increasing, as more complex fields have to be developed to satisfy demand.

A second problem is supply reliability. OPEC+ suppliers have delivered many supply shocks since the first Arab Oil boycott in 1973/4. And Russia’s current gas/oil cutbacks highlight how wider geopolitical aims can dominate supplier thinking.

Portugal thus shows the way forward as the APREN chart confirms. Despite 6 months of drought, 57% of electricity came from renewables last year.

And as an ICIS report highlighted in 2021, Portugal’s clean energy focus means it is set to become “one of the cheapest markets in Europe” – whilst also reducing CO2 emissions by 75%.