Angus McCrone
Chief Editor
BloombergNEF
A decade ago, as 2009 drew to a close, Donald Trump was a bombastic reality TV star, Greta Thunberg was an unknown six-year-old in Stockholm, and the world had yet to appreciate major advances such as vaping, yoga pants and “bars” where you get your eyebrows threaded.
Indeed, a lot can happen in a decade. Or not. Ten years ago, the planet was facing a climate change emergency – and now, yes, it is facing a climate change emergency. Therefore surely the 2010s, which end in two months’ time, have been a “wasted decade” from the point of view of climate and the decarbonization of energy?
After all, emissions have carried on increasing during the 10 years. Carbon dioxide has climbed from 388 parts per million a decade ago, to 412ppm now, and shows no sign of slowing its ascent; and the three warmest years for the planet since 1880 have been 2015, 2016 and 2017.
So the answer is obvious, but it is also half wrong. If you were to view the decade just ending from a standpoint of the closing days of 2009, what has transpired in the world’s power and transport systems would have seemed wildly improbable and, to those worried about climate change, too optimistic.
The decade behind
One measure of how the decade has gone is to compare forecasts for 2030 made 10 years ago, with forecasts for the same year being made now. We can draw on the International Energy Agency’s World Energy Outlook series, for insight on what mainstream forecasters saw ahead when they looked in the crystal ball in late 2009.
On emissions, the agency’s central forecast[1] was for annual energy-related emissions to increase by about 12 metric gigatons – or a massive 44% – during the 2010s and 2020s, reaching 40.2Gt in 2030. As the 2010s have worn on, the IEA has trimmed this back, so that in its November 2018 outlook, it saw emissions rising by less than 7Gt over the two decades, to 34.6Gt in 2030. That is 5.6Gt less than it thought 10 years ago, although this would still represent an increase of 24%.
On the worst single culprit for carbon emissions, coal-fired electricity generation, the agency’s forecast last year was for that sector’s electricity output to be nearly a third less in 2030 than it predicted back in 2009.
As for the long-term trajectory for coal, BloombergNEF has become significantly more bearish than the IEA. Its 2019 New Energy Outlook, or NEO, published in June, saw global coal-fired electricity output peaking as early as 2026, and then declining 4% by 2030 and by as much as 53% by 2050.
The other side of the coin in generation during the decade just ending has been the meteoric rise of wind, and particularly solar. Back at the time of the Copenhagen conference at the end of 2009, almost no one would have imagined that solar power – with just 25 gigawatts of capacity operating worldwide at that point, all of it at a significant cost premium to other technologies – would become the most installed generation source of the new decade.
However, that is exactly what happened. The report Global Trends in Renewable Energy Investment 2019, published last month by UN Environment Programme and Frankfurt School and based on data and analysis from BNEF, estimated that over the 2010-2019 period, some 638 gigawatts of solar power will have been added, outpacing coal’s 529 gigawatts of net new additions, wind’s 487 gigawatts and gas-fired generation’s 438 gigawatts.
That stellar performance by solar has come about, of course, in large part because of cost declines – declines that would also have seemed almost inconceivable 10 years ago. BNEF’s latest Levelized Cost of Electricity Update, covering the second half of 2019 and published last week, showed that the all-in cost of generation for solar photovoltaics without tracking systems has tumbled 83% since 2009, reaching just $51 per megawatt-hour. That is a global benchmark – the levelized cost is even lower in some locations.
That new figure, and a closely matched equivalent for onshore wind of $47 per MWh, down 49% over the decade, means that two-thirds of the world population are living in countries where either solar or wind is now the cheapest choice for electricity generation in terms of all-in costs.
Electricity generation has not seen the decade’s only stunning development in energy. Late in the 2000s, there was excitement about transport, just as there is now. However, the subject of this excitement was biofuels, a sector that saw booms in investment in the U.S. in 2006-2007 and in Brazil in 2008. Electric cars? The IEA’s World Energy Outlook of 2009 scarcely mentioned them apart from a prediction that they would amount to just 0.3% of the global fleet by 2030.
Fast forward 10 years and biofuels are a small niche, while electric vehicles are breathing down the necks of their internal combustion engine, or ICE, competitors. Global sales of passenger EVs have jumped from 448,000 in 2015 to 1.9 million in 2018, and are expected by BNEF to hit 2.3 million in 2019. That is only the start – our Long-Term Electric Vehicle Outlook, published in May, predicted that electric cars would undershoot conventional models on both upfront and lifetime costs by the mid-2020s, and would take 30% of global light-duty vehicle sales by 2030, and 57% by 2040.
Just as serious for the combustion-engine industrial complex is that cars are only part of it. Electric buses are on course to take 72% of their market by 2030, according to BNEF, while electric drive-trains are set to represent 27% of the light commercial vehicle market by 2030 and 12% of the medium commercial market.
The decade ahead
Read the above, and the danger is that that you get too comfortable. There have been exciting changes in the current decade that have made the dream of decarbonization look much more credible than it did in 2009. However, the planet-wide emission cuts needed to bring about something compatible with stable temperatures have not even started.
Global power sector emissions are likely to end this decade about 10% higher than they were in 2009, and emissions from other energy uses (transport and heating) are still increasing by at least 0.5% per year.
Getting a different result from the 2020s depends partly on the trends from this decade continuing, and speeding up – specifically the move to wind, solar and batteries and away from fossil fuel power, and the electrification of transport.
A white paper published last month by World Economic Forum entitled The Speed of the Energy Transition: Gradual or Rapid Change? examined two types of long-term forecast for the energy system. The first type involved incremental shifts toward newer technologies over the decades ahead, but also an energy sector that evolved rather than changed dramatically. Incumbent players such as the oil and gas majors would have the chance to adapt. The second type involved much more revolutionary change, in which stranded assets and redundant business models would quickly be exposed.
Written by Kingsmill Bond of Carbon Tracker Initiative, with help from Jules Kortenhorst of Rocky Mountain Institute and myself on behalf of BNEF, the paper posited five “milestones” to look for in 2030 that would signal whether the “Gradual” or “Rapid” scenarios were winning. One milestone was the extent of the fall in the cost of solar electricity. The second was the pace of solar capacity installations. The third was EV market share in 2030. The fourth was the presence by 2030 of significant carbon taxes. The fifth was whether the 2020s would have seen the moment of peak demand for new ICE cars, for the use of fossil fuels in electricity, and for the use of fossil fuels in total.
At BNEF, we tend to be more inclined to the “Rapid” scenario, in our analysis of the future. Our New Energy Outlook from June saw $5.3 trillion being invested in new wind capacity, $4.2 trillion in solar, and $840 billion in battery storage between now and 2050. This would be enough, according to our model, for 48% of world electricity to come from those two renewable power technologies by mid-century, up from 8% in 2019.
Although we are confident in our analysis of the fierce cost reduction trends in wind and solar that would make this possible, deployment of wind turbines and PV panels will still have to get over a number of hurdles in the 2020s to achieve that result. One is the availability of low-cost finance in developing countries – a topic discussed in my May article Marry Institutional Cash to Developing World Green Power. If finance proves much more expensive, then those countries will struggle to build wind and solar projects at anywhere near the low levelized costs achievable in more mature markets. That could limit development.
A second is what my colleague Victoria Cuming called “the missing money problem” in a BNEF Talk at our London Summit on October 21 (client links web | terminal). The issue here is that in the new, subsidy-free renewables environment, project developers and investors may be hesitant to commit money because the actual power price their wind or solar projects get may be well below the average wholesale electricity price. This results from the fact that wind projects tend to have the right conditions to generate at the same time as other wind projects, and this is even more the case with solar. The more projects there are, the more they depress each other’s electricity price – in a process known as “cannibalization”.
It is a fascinating conundrum, full of potential twists. Will solar and wind developers perceive the issue in advance, and therefore rein in investment plans? If so, you would expect realizable wind and solar electricity prices to end up being above what those developers expected. Will battery project developers rush in to exploit a looming gulf between the electricity price when wind and solar are generating, and the much higher price when they are not? If so, there might be so much storage built that the expected electricity price gulf shrinks sharply. In which case, wind and solar developers once again have every incentive to build.
I do not know the answer to the conundrum. An unhealthy equilibrium could result, in which projected realized electricity prices are too low to justify investment in wind and solar, and peak prices are not attractive enough to incentivize new storage. Or, as I suspect, we may see a classic capitalist rollercoaster, involving big swings in the pace of wind and solar installation, and equally big swings in the pace of battery (and perhaps peaking gas-fired plant) installation. That would mean chronic uncertainty, and lots of mistimed investment decisions.
Briefly, transport also faces its own uncertainties. For instance, the excitement about EVs is palpable now, but the emission standards that have been putting ICE car-makers under pressure to go low-carbon or electric in the U.S., Europe and China are facing resistance and/or legal battles, and could yet be loosened.
Phase two
The 2020s will not just be about wind, solar, batteries and electric cars. In March 2018, Michael Liebreich wrote an opinion piece entitled Beyond Three Thirds: The Road to Deep Decarbonization, making the point that to cut emissions sharply in sectors such as residential and industrial heat, and heavy transport – and also to take renewable penetration inside the electricity mix from a possible 80% or so, toward 100% – other technologies are going to be necessary.
This is where the crystal ball for the 2020s starts to look cloudier, because most of those “other technologies” are immature, or expensive, or both. The likes of renewable hydrogen (produced via electrolysis, rather than by the fossil process of methane reforming), carbon capture and storage, and next-generation nuclear may not be needed at scale in the 2020s to achieve world climate objectives – but they, or something comparable, will certainly be needed from the 2030s onwards. The process of getting those technologies ready, and cutting costs, will have to get underway in the decade just about to start.
BNEF’s NEO analysis this year for the first time considered 100% electrification of road transport and the heating of residential buildings, changes that would lead to a significant expansion of power generation’s role. It concluded: “Governments need to do two separate things – one is to ensure their markets are friendly to the expansion of low-cost wind, solar and batteries; and the other is to back research and early deployment of these other technologies so that they can be harnessed at scale from the 2030s onwards.”
The last time investors were excited about hydrogen was probably around 2006 or 2007. The universe’s most abundant element has had a long period out of fashion in the energy sector, but now it is back with a vengeance – with proponents seeing its production, and then combustion, as the future answer to applications as diverse as long-term energy storage and low-carbon heat.
My colleague Kobad Bhavnagri has led a special project on hydrogen this year, with research published on a welter of topics including the economics of producing it from renewable power, the use of it instead of coal in steel production, and the challenge of transporting and delivering it.
Bhavnagri told a packed session at the BNEF London Summit on October 22 that if governments pursue support policies aggressively in the 2020s, “hydrogen can unlock surprisingly low-cost emission reductions across the hard-to-abate sectors, and help make net-zero targets easier to reach.” Clients can view his BNEF Talk on these links (web | terminal).
Decadal vistas
A few weeks away from the 2020s, the scale of the challenge ahead to bring about decarbonization is daunting. Will the world in 2029 be on track to halt the CO2 increase before it crosses 450ppm – and temperature warming before it crosses 1.5 degrees Celsius above pre-industrial levels?
That seems too much to hope for. But I would rather be where we are now, at the end of 2019, than where we were at the end of 2009.
[1] In 2009, this was its Reference Scenario. In 2018, this was its New Policies Scenario.