For hydrocarbon doomsayers, there’s good news and bad news. In 2015, there were record investments in renewable energy, and record capacity was added, much of it in emerging economies. Yet despite the huge investment, the global share of fossil fuels is not shrinking very fast.
Renewables such as wind, solar and geothermal still account for a tiny share of energy production, and there are factors that may inhibit their growth in the next few years.
REN21, the international renewable energy association backed by the United Nations Environment Program, has summarized impressive developments in the sector in 2015. Total investment in renewable power and fuels reached $285.9 billion, an all-time record, and renewable power capacity, including hydropower, increased by 148 gigawatts – another record – to 1.8 terawatts.
For the sixth consecutive year, investment in new renewable capacity was higher than in hydrocarbon-burning power plants.
Much of the increase came from the developing world. China was in first place; the U.S. came in second, and added more solar and wind capacity than any other country. Turkey added the most geothermal generation.
The narrative about the environmentally conscious rich nations and the laggard poor ones is obsolete; Mauritania invested the biggest share of economic output in sustainable energy in 2015, followed by Honduras, Uruguay and Morocco. Bangladesh is the biggest market for home-based solar systems.
One might think the energy revolution is fast displacing fossil fuels. Not really.
Although investment in renewables and in the oil industry are of comparable magnitude – $522 billion was invested in oil last year – sustainable energy is growing from a very low base.
Wind, solar, biomass and geothermal power used in power generation – the area where most governments have concentrated their sustainable energy efforts – account for just 1.4 percent of global energy consumption.
We read about the big successes – Costa Rica with 99 percent of energy generated from renewable sources, Uruguay with 92.8 percent, three German states with most of their energy coming from wind – but weaning the world off fossil fuels is an uphill battle.
One reason is regulators’ understandable fixation on generation.
Wind and solar installations are relatively easy to promote: The technology is already there; all governments need to do is subsidize its use by levying additional taxes or “feed-in tariffs.” It’s much harder to set up an equally effective mechanism in transportation, which uses the lion’s share of oil products.
Although solar and wind generation is already price-competitive with fossil fuels in many countries, modern electric vehicles are pricey, clunky (yes, even the Teslas) and far behind gas-powered competitors in terms of driving range.
It would be an expensive proposition for governments to subsidize them to a degree that would make them popular.
Now, because oil is relatively cheap, the global market is moving toward cars that use more gas, especially SUVs. No wonder global oil consumption grew at the fastest rate in five years in 2015.
This year, the growth is set to continue. And increases in renewables capacity may hit some obstacles soon.
Most of last year’s expansion came from additional wind and solar capacity. Countries such as Germany and Poland added a lot of wind power because their governments are about to end direct subsidies and move to tendering programs, which allow only the lowest bidders to build new power plants.
This is fair: European governments nursed sustainable energy producers when it was hard for them to compete with traditional generation on price, and now it’s time for a more market-based approach. The policy shift, however, will probably cause an investment slowdown starting in 2017.
Solar photovoltaic generation has another problem in markets where it has a large, established share, especially in Europe.
“The more that solar PV penetrates the electricity system, the harder it is to recoup project costs,” the REN21 report says. “So an important shift is under way: from the race to be cost-competitive with fossil fuels to being able to adequately remunerate solar PV in the market.”
Other markets, too, will eventually reach a point where government support has to be scaled back because it’s harder to justify, and the huge investments of today will become harder to recoup.
The current investment and growth rates in renewables are not quite natural, and they are not likely to last. Only major technological breakthroughs in energy storage, both for grids and for vehicles, could ensure another leap in sustainable energy use.
Without such breakthroughs, which will make traditional generation and powertrains vastly inferior to modern ones, demand for fossil fuels will remain strong for decades.
The International Energy Agency’s projection for 2040, based on the current growth rate in renewables, has the share of natural gas used in power generation roughly at the same level as today. It doesn’t predict any drops in oil demand.
Those who have predicted the end of the petrostates and permanently low oil prices are in for a long wait. Fortunes will still be made in fossil fuels, and oil dictatorships will probably keep squabbling and menacing their neighbors at least for most of our remaining lifetimes.
Leonid Bershidsky, a Bloomberg View contributor, is a Berlin-based writer.