Emerging markets India and China are driving growth in energy demand and choosing renewables over fossil fuels. Both are already choosing solar and wind over fossil fuels, a new report said on Tuesday.
Globally, the rapid growth of clean technologies will see fossil fuel demand peak in the 2020s, putting trillions at risk for unsavvy investors oblivious to the speed of the unfolding energy transition, said the Carbon Tracker report released here.
The report was released in the run-up to the three-day Global Climate Action Summit here from September 12 that will see 4,000-plus business leaders, investors, citizens and government representatives from all over the world, coming together with the united resolve to “take ambition to the next level”.
The report says demand for coal, gas and oil is stalling because the cost of renewables and battery storage is falling fast, emerging economies are pursuing clean energy, and governmental policy is being driven by the need to slash emissions, control climate change and reduce air pollution.
It says China overtook the US as the largest deployer of solar and wind capacity in 2012 and electric cars in 2016.
Quoting the International Energy Agency, the report says 27 per cent of energy-demand growth in the next 25 years will come from India and 19 per cent from China.
The report, ‘2020 Vision: Why You Should See Peak Fossil Fuels Coming’, shows solar and wind will displace all growth in fossil fuels globally as they continue to expand against a backdrop of falling energy demand.
With global energy demand expected to grow at one to 1.5 per cent and solar and wind at 15-20 per cent a year, fossil fuel demand will peak between 2020 and 2027, most likely 2023.
“The 2020s will be the decade of fossil fuel demand peaks, as one bastion after another is stormed and overwhelmed by the rising renewable tide,” Carbon Tracker New Energy Strategist and report author Kingsmill Bond said in a statement.
“This will inevitably lead to trillions of dollars of stranded assets across the corporate sector and hit petro-states that fail to reinvent themselves.”
The report foresees that the impact of the energy transition will be colossal, especially fossil fuel exporting countries like Russia.
The average global cost of solar PV electricity has fallen from $350 per MWh in 2010 to $80 in 2018, with auction results indicating it will fall to $50 by 2020.
In certain locations such as the Middle East and India the cost has fallen still lower.
In October 2017, Acme solar PV won a bid for the Bhadla solar park in Rajasthan at $36 per MWh. In May 2018, Masdar officially launched the phase 3 of the MBR Solar Park near Dubai, with a cost of $30 per MWh.
According to Bloomberg New Energy Finance (BNEF), the price of solar panels is likely to fall by over 20 per cent this year to 24 cents per watt of capacity — and the panel industry is on a learning curve of 29 per cent.
The peak in fossil fuel demand will have a dramatic impact on financial markets in the 2020s. It will be supercharged by an emerging market leapfrog. Emerging markets have all the energy demand growth and will choose renewables over fossils as their path to development.
China has already overtaken the US, and India will follow.
India has just increased its 2022 target level of renewable energy deployment from 175 GW (a level which once seemed far beyond reach) to 228 GW.
Over the last 12 months, the cost of solar PV electricity in India has fallen to $36 per MWh, a level well below that of new coal-fired power stations.
India also has ambitions for all new car sales to be electric by 2030.
The peaking of global coal demand was little anticipated by the industry, which believed that coal demand growth would continue as India and other emerging markets replaced China as the driver of demand.
As a result, companies built capacity for demand that never materialised.
And the overcapacity caused price falls, which in turn caused bankruptcy or significant share price falls in a number of major coal companies.
The Carbon Tracker report finds the tipping point for fossil fuel demand will come when the challenging technologies of solar and wind make up around six per cent of total energy supply and 14 per cent of global electricity supply — far below levels of penetration in many countries in Europe.
One of the factors driving the energy transition is costs of solar PV, wind and battery storage that are falling fast and they are now able to compete with fossil fuels without subsidies.
Costs have fallen at around 20 per cent for each doubling in capacity and this is expected to continue.
By 2020, renewables will be cheaper than fossil fuels in every major region of the world, according to the International Renewable Energy Agency.
Carbon Tracker says coal-fired and gas-fired power plants in Europe and parts of the US are already being closed down because they are uneconomic; in the last 12 months, China has halted construction of 100GW of coal power.