It’s time to call it. Renewables and associated storage, transport and digital technologies are so rapidly disrupting whole industries’ business models they are pushing the fossil fuel industry towards inevitable collapse.
Some of you will struggle with that statement. Most people accept the idea that fossil fuels are all-powerful and it will take many decades to force them out of our economy. Fortunately, the fossil fuel industry suffers the same delusion.
In fact, probably the main benefit of the US shale gas and oil “revolution” is that it’s keeping the fossil fuel industry and its cheer squad distracted while renewables, electric cars and associated technologies build the momentum needed to make their takeover unstoppable — even by the most powerful industry in the world.
How could they miss something so profound? One thing I’ve learnt from decades inside boardrooms is that, by and large, oil, coal and gas companies live in an analytical bubble, deluded about their immortality and firm in their beliefs that “renewables are decades away from competing” and “we are so cheap and dominant the economy depends on us” and “change will come, but not on my watch”.
Their delusion, however, is good news for the world. If the industry really understood what was happening, it would pull out all stops to prevent it. While fossil fuels would ultimately fail, it would cost us decades of lost time — decades we can’t afford if we are to stabilise society and reduce the risk of collapse.
As I argued in my book The Great Disruption, dramatic economic change is not a choice we get to make, but an inevitable result of physical science. This is because business as usual, with results like ever-increasing resource constraint or a global temperature increase of 4 degrees or more, would trigger economic and social collapse. So the only realistic outcomes are such a collapse or an economic transformation that prevents it, with timing the only big unknown. I argued transformation was far more likely and, to my delight, that’s what we see emerging around us today — even faster than I expected.
Although it now frames thinking in this area, the mistake many make is to then extrapolate that risk into a likely global policy response as the main driver of change. The thinking goes that we need a “Pearl Harbour moment” — a physical event that forces a global policy agreement to change. But that’s not how systems change or how our global market society works. Things are far more chaotic and messy — though probably more predictable.
Economics is the best lens through which we can both see the triggers for transformation and are able to measure its progress. When we see the price of solar plunge at extraordinary speed and watch its deployment swing like a wrecking ball through the utility sector, we should acknowledge it’s going to have more impact on the human system response to climate change than the terrifying acceleration of the melting of the Arctic.
And when I say wrecking ball I probably understate it. As this excellent overview from Stephen Lacey at Greentech Media explains, the utility sector now faces a “death spiral”, and it’s likely many of them won’t make it. This is not a theoretical future crisis — growth in renewables is the prime reason the top 20 European utilities have lost $600 billion (no, not a typo!) in value over the past five years. That’s what the financial carbon bubble bursting in a sector looks like — ugly and messy — and there are many more to come.
“If you think this utility problem isn’t enough to seriously threaten the overall fossil fuel industry, think again …”
The disruption is worse for old players, because this is not just technology switching. The whole sector is moving to a distributed rather than centralised system, thereby inviting in countless new, nimble competitors into the space. This is fundamental structural change that is going global, as Giles Parkinson from RenewEconomy explains.
If you think this utility problem isn’t enough to seriously threaten the overall fossil fuel industry, think again — this is just one of a number of fronts where they’re being hammered. Long-term expert on oil and energy trends Richard Heinberg explains the oil story well in this podcast, while this excellent overview from Chris Nelder, shows how oil, gas and coal are all under serious pressure. Like Heinberg, Nelder also argues the “soaring cost of producing oil has far outpaced the rise in oil prices”. Nelder also notes that in the US alone, 60 GW of coal power plants are expected to be taken off line by 2016 — double the volume forecast by the US Energy Information Administration less than two years ago. Things are moving very quickly now.
I haven’t mentioned the revolution underway with electric cars, where Tesla is valued at more than half of GM — despite the latter producing 300 times as many cars! Do you think the market knows where that is going? Or the incredible impact of China having to clean up its air or risk economic and social unrest — knowing when China acts the market impacts are world scale.
Or the role of digital technology and dot-com billionaires in driving disruptive change via the move to a distributed energy system — one characterised by rapid innovation and entrepreneurship and the arrival of the “Internet of Things”. It’s in these connections between innovations that the most interesting disruptions are developing. So electric cars become grid storage devices for home renewables, with each car a mini-power station in peak times. I’ll never look at a city car park the same way again.
Already businesses in the US can get battery systems from Coda Energy to even out grid power use and avoid peak pricing. With software monitoring the grid to know the highest value time to respond, it can be installed at zero cost, then paid for by sharing the savings with the battery company. And the solar industry is at last in boom times, with the HSBC’s Global Solar index up 65% last year and already up 23% in 2014.
And all this brings increasing recognition by investors that the carbon bubble and stranded assets are serious financial risks, which in turn reinforces the growing power of NGO campaigns against coal and coal seam gas along with their fossil fuel divestment campaign. Then of course there is the role of climate policy, which, given the threat to civilisation, seems like it might gain traction at some point!
So, as I see it, the game is up for fossil fuels. Their decline is well underway, and it won’t be a gentle one. When that occurs, we may find that those forecasts by myself and others like Tony Seba from Stanford University, that the oil, coal and gas companies will be all but obsolete by 2030, might turn out to be conservative after all. Interesting times indeed.