In its World Energy Outlook, the IEA sets the energy agenda for renewables – and the fall of fossil fuels.
The Fall of 2022 has been a busy news season. It likely marks the end of an era of the English monarchy. Billionaire Elon Musk bought the world’s town square. But for me, it will go down as the time when the International Energy Agency (IEA) finally woke up and smelled the climate change coffee.
Their new World Energy Outlook (WEO) came out just before America’s Halloween. It must be spooking everyone from Houston, Singapore, New York, Moscow, Abu Dhabi and anywhere dependent on growth in fossil fuel sales. It is music to the ears of clean energy entrepreneurs and proponents of climate solutions.
Here’s why: The IEA sees Russia’s supply shock to the coal, oil and gas markets for what it is. The EU’s new ambition to halve gas usage this decade will make any win by Putin pyrrhic. The invasion of Ukraine has led to some profiteering, but it has also accelerated fossil fuels’ demise. Even gas is projected by the IEA – a creature of oil and gas – to peak this decade. That’s a big shift in perception in 12 months. And it matters to markets and politics.
It’s an even bigger shift compared to what the IEA was modeling a decade ago. If you can believe it, the IEA published a scenario called the “Golden Age of Gas” in 2011. It was driven in large part by the emerging economies getting stuck on this so-called “bridge fuel.” Now the IEA is projecting about half to two-thirds as much gas use in “emerging Asia,” as experts there suggested would happen up to 2035.
Fossils are now losing on all fronts, and even the IEA is saying so.
THE BEGINNING OF THE END
I remember back in 2012, as the world was coming out of the Great Financial Crisis, being told that the energy transition had just ended its “beginning phase.” Like the second battle of El Alamein for the Axis powers in World War II, fossils were starting to lose. In the war for hearts, minds, wallets and bank accounts between dirty and clean technologies, we may have already begun the “end phase.” Fossils are now losing on all fronts, and even the IEA is saying so.
This is not to say that change is easy. The rest of the decade will be difficult on the energy-transition front. Whether we’re in the messy middle or coming around the corner into the final stretch, it’s hard to say. Coal and oil, while both having hit historic peaks in consumption some time ago, are experiencing a long plateau in sales. There has even been a bump in coal use this year in places, but it’s clear to anyone looking that there is no structural return.
Still, it is challenging to see through the fog. We know from the history of commodities that high prices are a “bearish” medium-term indicator. High prices drive users towards cheaper substitutes. This is why the CapEx (capital expenditures) in wind and solar this year will overtake the CapEx in oil and gas for the first time ever.
A coronation by stealth
In October 2020, Fatih Birol said he saw solar “becoming the King of the world’s energy markets.” As Fatih is head of the IEA, this attracted a lot of pundit attention to the WEO – and more to the coming energy decade than ever (remember this was mid-COVID, pre-Ukraine War, etc.). I believe in WEO 2022; the IEA just crowned solar as King. It makes clear what we have known was coming for some time and marks the actual passage of the fallen fossil fuel leader.
It’s not enough, but it’s a start.
A summary of the impact of this comeuppance is in the WEO abstract: “Renewed policy momentum and technology gains made since 2015 have shaved around 1 degree Celsius off the long-term temperature rise.”
No, that’s not enough, but it’s a start. And we have established the following: Renewables are better, cheaper and faster than the alternatives – coal, oil and gas.
In WEO 2022, as opposed to the Outlook the IEA published in 2021, renewables provide almost all new additions to energy supplies this decade. Their competitive advantage is now dominant because they are no longer the ethical thing to do but the economic thing.
Long live the King!
Startup of the month
All that low-cost electricity means that we are going to have a lot of energy storage on the grid. Batteries on wheels are one asset we’ll make more of in times to come – that’s bikes, cars and buses. And long-duration storage is coming, too. Watch this space for exciting flow battery announcements in California soon. Last week, I caught up with one of my favorite startups in the alternative-to-lithium space, EnZinc, at Greenbiz’s Verge Expo. Full disclosure, they have been supported by New Energy Nexus over the years in a number of ways. Check out the recording of my conversation with CEO and founder Michael Burz. While you’re at it, check out this video we helped create for the crowd at the conference!
