For the first time in 130 years, renewable energy consumption in the United States has surpassed coal. This is a big deal. According to the U.S. Energy Information Administration, this has not happened since before 1885 when hydropower was the preferred form of energy for electricity generation. In 2019, coal consumption decreased for the sixth year in a row to 11.3 quadrillion Btu. This reflects the decline in the use of coal over the past decades as well as the interest and surge in the use of renewable energy.
In my last post, I mentioned that the current economic crisis caused by the COVID-19 pandemic could decelerate the energy transition and represent a lifeline for fossil fuels—based on the latest decisions taken regarding environmental standards. Nevertheless, to ensure not only climate goals but also a healthy economy, we need to move forward. In the words of Andrew Steer, Chief Executive of the World Resources Institute:
“we can pursue a modern, clean, healthy energy system, or we can go back to the old polluting ways of doing business.”
Fossil fuels like coal and oil have been an important part of the energy mix for over a century; but volatility in those sectors—particularly oil—has been exacerbated by the pandemic. Oil prices have always been volatile even before COVID-19. For some companies, it does not make sense to be drilling for oil if the price gets below $25 per barrel when operation costs alone fluctuate around $13 per barrel depending on the company and location (that is the avg. OPEX for some Texan wells). In the U.S. where the oil and gas industry supports 8% of the country’s GDP, economic stimuli have been extended from the government to oil and gas companies to help them survive the crisis.
Renewables, on the other hand, have proven over time that their returns on investment yield better results than fossil fuels; especially when uncertainty is introduced in oil and gas economic valuation models since they are extremely susceptible to price. Green energy stocks are less volatile and are holding up well during the pandemic.
A new study by the International Renewable Energy Agency found that
“accelerating investment in renewable energy could generate huge economic benefits while helping to tackle the global climate emergency.”
Investing in renewables could provide GDP gains of $98 trillion above business-as-usual levels by 2050 as well as quadruple the number of jobs in the energy sector over the next 30 years. Additionally, by accelerating the energy transition and making it an integral part of the economic recovery, governments can achieve not only economic but also social objectives improving human welfare.
A different study by the Imperial College London and the International Energy Agency found that renewables investments in Germany and France yielded returns of 178.2% over a five-year period compared with -20.7% for fossil fuels. But maybe it will be clearer and fairer if we compare the numbers for one of the largest oil producers in the world. The study found that in the U.S., renewables yielded 200.3% returns versus 97.2% for fossil fuels. Still much better rates.
Even oil and gas companies understand that consumers—especially younger generations—are more engaged and aware of the impact of fossil fuels in the environment; thus, more inclined to demand cleaner products including energy. Marteen Wetselaar, Director of Integrated Gas & New Energies for Shell, says they can only sell what customers are willing to buy; and they have more and more customers looking for solutions to procure clean energy for their own clients.
Currently, renewables like wind and solar still need backup which usually comes from fossil fuels; luckily, battery and storage technology keeps advancing which makes them less dependent on other types of energy. However, it is still difficult to picture a world without fossil fuels especially in sectors in which they are very difficult to replace like petrochemicals or aviation fuels.
Nevertheless, there has been so much progress in the renewables industry from cheaper technology to wind currently being the most used source of renewable energy for electricity generation in the U.S. We can hope investment in green energy will continue. It just takes a roadtrip within Texas to see the landscape been taken over by wind turbines—and oh what a sight to see.
The Guardian, U.S. EIA, Forbes, The Energy Podcast by Shell