Goldman Sachs report sees renewable energy replacing fossil fuels

Source: By Jonathan H Harsch, Agri-Pulse Communications  • Posted: Thursday, December 17, 2015

WASHINGTON, Dec. 15, 2015 — For the first time, the world’s faster-than-expected deployment of wind and solar power, LED lighting, and electric and hybrid vehicles will generate more than one gigatonne (Gt), or a billion metric tons, of annual CO2 emissions reductions in 2015. The reductions due to the use of renewables were 0.87 Gt for 2014 and are on track to reach 5.3 Gt per year by 2025. Those figures compare with a current estimated 32 Gt of fossil fuels emissions per year.

The findings come from a data-driven Goldman Sachs report on the Low Carbon Economy. Another finding is that the already rapid pace of the disruptive shift to renewables is accelerating. The investment bank’s analysts expect “the greatest market dislocations to occur between 2015 and 2025.”

The report calls the shift “not the beginning of the end for fossil fuels” but instead “marks the end of the beginning for the low carbon economy.” It points out that oil, gas and coal still “generate two-thirds of electricity, power over 75 percent of industry, and fuel 95 percent of the global transport fleet.” But the report adds that “public pressure to find ways to reduce” fossil fuel use is increasing, as demonstrated by the 196-nation global climate agreement finalized in Paris on Saturday.

The Goldman report says an even faster transition to renewables is possible because “policy support, particularly for onshore wind and solar PV (photovoltaic), could increase further as their near-term emissions reduction potential becomes increasingly apparent” – and as the investment community understands that renewable energy offers a rapidly growing $600 billion per year revenue opportunity.

The 53-page report warns, however, that investors need to remain wary because the surge in renewables has prompted some governments including Australia, China, Germany and Spain to reduce some support. That’s because volume-based subsidy costs have soared along with deployment – and because the renewable sources that Goldman sees as the leaders, wind and solar, are well enough established to have less need for subsidies and “cost reductions mean that less subsidy is needed to incentivize deployment.”

Despite policy uncertainties and determined resistance from Republicans in Congress, Goldman forecasts that solar panel PV and onshore wind power will shatter the record set by the recent surge in U.S. shale oil production from hydraulic fracking. The report forecasts that “in 2015-2020, new wind and solar installations will add the oil equivalent of 6.2 million barrels per day (mbpd) to global energy supply. This is more than the 5.7 mbpd U.S. shale oil production added over 2010-15.”

Highlighting the major challenges facing the fossil fuels industry, Goldman points out that “In coal, the market cap of the top four U.S. coal companies has dropped by over 90 percent in 2015 as they have struggled with a combination of cheap gas, renewables, emission regulations, and weak exports.”

The report points to similar shifts overseas. It forecasts that China will add 23 gigawatts (GW) in coal and 40 GW in natural gas power capacity by 2020. But over the same five years it expects China to add 193 GW in wind and solar power.

Goldman expects rapid global expansion for LEDs, to reach 69 percent of light bulbs sold and over 60 percent of the installed global base by 2020. That’s after racing from a 1 percent market share in 2010 to 28 percent today. Similarly for autos: Goldman analysts peg hybrid and electric vehicle sales at 25 million units by 2025, or 22 percent of sales, up from 3 percent today.

Goldman analysts add that potential breakthroughs on battery technologies “could create material upside to current growth projections.” The report sees new batteries supporting the growth of grid connected vehicles and becoming “a game-changer for the economics of wind and, in particular, solar power . . . Advancing battery technology could significantly enhance the economics of wind and solar, further accelerating their deployment.”

In contrast to its bullish outlook for wind, solar, LEDs, and hybrid and electric vehicles, Goldman is bearish on ethanol and other biofuels, warning that biofuels face “subsidy cuts and stagnating private sector investment.” Similarly, the report downplays both offshore wind and concentrated solar power, saying they “make up a mere 2 percent of wind and solar power installed” and are “no match for onshore wind and solar PV, whether in terms of scale, volume growth, or cost reductions.”

The report concludes that “Biofuels have been among the most heavily subsidized low carbon technologies, but growth is fading.” Contradicting U.S. EPA and California Air Resources Board analyses citing biofuels’ multiple benefits, the Goldman report warns, “Governments are scaling back their support as they worry not only about the impact on global food security (biofuels supply only circa 3 percent of global fuel, but use 2 to 3 percent of global farmland) but also about the limited emissions savings once the entire lifecycle is taken into account.”

In terms of energy policy, the report sees carbon pricing as the most efficient way to promote renewables. But it finds that due to political controversy and other constraints, “carbon pricing is likely to remain one regulatory instrument among many, with limited coverage and relatively low price levels.”

Despite the failure to place a high enough price on carbon emissions, the report sees wind, solar, LEDs, and electric vehicles all benefiting from a combination of:

“continued strong regulatory support,”
“the ability to rapidly scale up to mass-market,”
“a clear pathway to full cost competitiveness with incumbent technologies, and”
“growing customer acceptance.”

Thanks to those benefits, the report finds that “LEDs are already past the ‘point of no return’ where little additional regulatory support is needed; solar and wind are getting closer; and grid-connected vehicles (electric vehicles or plug-in hybrids) now have an opportunity to deliver on growing investment and regulatory support.”

Even before the Paris climate talks successfully delivered a global climate agreement to reduce carbon emissions, the Goldman report says the world’s countries had “already achieved their most important goal: major advanced and emerging economies have presented new, relatively ambitious national plans to cut emissions and promote low carbon technologies.”