Who’s Vision of the Renewables Future is More Likely: BNEF’s or Exxon/EIA’s?

Anyone following the renewable energy and/or electric vehicle (EV) space has seen, heard and read about BNEF’s annual energy outlook released early this week and its progressive view about the future of renewables. We know, for example, that BNEF estimates:

• $7.9 trillion will be invested in renewables (particularly wind and solar) between 2016-2040, but that will not be enough to hit the UN’s 2°C climate target (another $5.3 trillion will be needed). $2.1 trillion will be invested in coal and gas generation, mostly in emerging economies with India relying heavily on coal to meet electricity demand (hampering global climate change mitigation efforts).
• The cost of wind and solar will fall 41% and 60%, respectively, by 2040 and will become the cheapest ways to produce electricity starting the in 2020s.
• EVs will add 8% to global electricity demand in 2040 – reflecting BNEF’s prior forecast that they will represent 35% of worldwide new light-duty vehicle sales in that year equivalent to 41 million cars and 90 times the 2015 figure. (Notably, EIA this week noted that transportation-related U.S. electricity sales would be very small compared to the industrial, residential and commercial sectors.)

But I thought it would be interesting to contrast these findings with Exxon’s Annual Energy Outlook, released in January of this year, and analysis released today from the U.S. Energy Information Administration (EIA), to get another version or vision of the renewable energy space. Exxon found that:

• Wind and solar capacity will grow but only represent 10% of global capacity by 2040 (up from 4% in 2014); they’ll experience the most capacity growth but intermittency will limit full utilization. Coal use will decrease but still dominate power generation at 34% of the market, followed by natural gas at 27% and nuclear at 19%. Exxon projects wind and solar will represent 10% of electricity generation by 2040 supported by favorable policies or mandates (not, apparently, because these sources are becoming cheaper in and of themselves).
• Natural gas is the better CO2-reducing option in some countries, including the U.S., noting that electricity generated using natural gas avoids intermittency issues and emits up to 60% less CO2 than coal.
• Transportation electricity demand doubles from 2014-2040, but still represents just 2% of total use (so clearly Exxon does not see huge penetration of EVs as BNEF does, they see it for hybrids).

BNEF estimates fossil fuels will represent 44% of power demand, while Exxon’s number is 61%. Both analyses highlight the growth in and reliance on coal for India, with Exxon projecting a doubling of coal-fired generation between 2014-2040. EIA projects that natural gas- will exceed coal-fired electricity generation by 2022, while renewables (largely wind and solar) will overtake coal-fired generation by 2029. This shift will be accelerated by the Clean Power Plan (CPP), but even with no CPP, renewables will grow driven by Congress’s recent extension of favorable tax treatment for renewable energy sources (similar to Exxon’s view).

The chart below compares BNEF’s view of total capacity versus EIA’s expected net electricity generation. It’s not an exact comparison, but it is interesting to look at trends (at least as it respects the U.S.), including the precipitous decline of coal generation and the increase of renewables (a less bullish outlook from Exxon and EIA) whether or not there is a CPP. There is a clear difference in view over the role of natural gas and on this one, I’d bet on Exxon and EIA, though I think BNEF has a much better handle on solar and wind technology evolution, deployment and cost.

Why bother with any of this though? I’m a transport fuels expert not a power generation expert! Because I see this as a market share issue for fuel providers and car companies. We’re increasingly living in a world where the fuel/vehicle with the lowest low-carbon intensity (CI) will dominate, especially as the global momentum grows to decarbonize transport and countries begin to set stringent (or more stringent) policies.

As I showed last week with the recent Argonne study, EVs and hydrogen fuel cells reduce the most GHGs only with wind and solar as the power source. Without it, hybrid and conventional internal combustion engine gasoline vehicles with advanced biofuels (forest residues, pyrolysis) reduce the most GHGs followed by E85 from corn stover. The race is on.