UK Uncensored: brought to you by Exponential Investor
In today’s issue…
- Three things the IEA says NEED to happen to reach net zero
- Digging deeper into the report which crashed the International Energy Agency’s website
- Solar and wind not done yet
I often say that the energy transition is so much more than solar, wind, and electric vehicles.
But in the International Energy Agency’s recent Roadmap to Net Zero report, it was emphasised just how we shouldn’t take those three pillars of the transition for granted, and how much further there is to go in terms of rolling them out at scale.
So today, I’d like to briefly pick out three key points from the IEA’s Roadmap to Net Zero. Whether you are a government, a CEO or an investor reading this, it could pay to take note.
Firstly, that solar and wind installations need to go from 114GW and 134GW per year in 2020… to a whopping 390 and 640 gigawatts respectively by 2030.
In just nine years’ time, they will have to triple and quintuple for us to be on track to meet our net zero goals.
That’s over 1,000GW of electricity generating capacity – the equivalent of China’s operating coal fleet being built every year, for 20 years.
People quite often think saving the planet is going to be all about crazy new technologies, moonshot products or extreme behavioural change – like giving up beef and holidays completely.
But the IEA’s pragmatic approach reminds us that a huge amount of what needs to be done can be achieved using technologies that are readily available today.
In fact, the main hurdles are more likely to be more boring things like… increasing manufacturing scale, and financing.
The trouble for investors is that renewable energy generation can be a difficult business to make money in. Because prices have fallen so far, margins across the value chain have been squeezed repeatedly, and led to harmful over competition and price cutting for market share.
But I recently spoke with a solar and sustainable energy fund manager, Chris Rathke, who’s advocating a solar boom 2.0.
To find out what he sees changing the narrative for investors in the solar industry, you’ll have to keep an eye out for our upcoming energy transition interview series, the third of our brilliant Beyond Oil summits.
Next on today’s agenda though, is energy efficiency.
After electric vehicles, it was listed as the third key pillar for the global energy transition before 2030 – as in the most important and achievable things we need to be doing now.
It’s not going to be enough to transform how we generate electricity or fuel our planes, trains, and automobiles.
We can also accelerate our route to net zero by making our energy consumption more efficient.
This doesn’t mean the abstinence from eating beef and visiting the Bahamas.
Instead, it’s things like replacing older lights with LEDs, which are significantly more energy efficient than older fluorescent or incandescent bulbs.
Or improving the coverage of double glazing and home insulation, so that less energy is lost as heat from buildings.
According to the IEA, the share of zero-carbon-ready buildings needs to go from less than 1% of stock currently to over 85% by 2050, and 25% by 2030.
I keep saying it, but that’s only nine years away! The urgency of the IEA’s roadmap is striking.
2050 seems so abstract, so far away. It makes it seem as though we still have time, but the 2030 milestones help to show how much needs to happen starting today, in 2021.
The third thing which struck me was about the effect the transition could have on some of the oil-dependent producer countries.
Like Nigeria, Iran, Mexico… Dare I say it, Scotland?
Wherever oil production makes up a large part of national tax revenues, and crucially a large part of jobs, there is trouble ahead.
The forecast is for oil demand to fall from just under 100mbpd in 2020 to 24mbpd in 2050.
With so much oil available but so little to be sold, only the very lowest cost producers would be able to sell profitably, meaning a greater concentration of sales to OPEC nations like Saudi Arabia, where oil can be produced for very little.
This is a forecast for a long-term decline in the price of oil. If only the cheapest barrels are sold, the price may end up floating around the $10-$20 mark.
But it’s also an urgent appeal to other oil-producing countries to wake up and sense the danger.
Higher cost oil will be priced out, and the countries producing it will find themselves with no one to sell to.
The IEA’s prediction is that some such nations could see national oil revenues fall by 75% or more.
The consequences for those countries that fail to diversify their economies away from it will be dire, it said.
My belief is that oil prices will be quite volatile for some time yet.
Perhaps the undersupply from Covid-19 and from the IEA’s pressure will cause price spikes in the near term.
But the longer term direction is clear.
Oil prices are going to fall, and most companies won’t be able to sell or even half of what they’ve got.
It’s a hard place to be investing, because if you can catch a spike, the stocks are cheap and the dividends can be generous.
But it is becoming a dangerous place to put much long-term cash, it would seem.
These three things – renewables, efficiency, and the end of the oil age – were brought powerfully home to me by the IEA’s roadmap.
So it seems a perfect time to mention we have been working very hard on a third instalment of Beyond Oil.
I can’t wait to tell you more about it, and the people I’ve been speaking to. They really are an all-star cast of guests, and the insights they had on every aspect of the energy transition was incredible.
I loved speaking to them, and I can’t wait to share their insights with you.
Keep an eye on your inbox so you can sign up when the time comes.
All the best,
Co-editor, Exponential Investor