Why $100 Billion Invested In Wind Or Solar Will Produce More Energy Than Oil
RenewEconomy
By Giles Parkinson
French investment bank Kepler Chevreux has produced a fascinating analysis that has dramatic implications for the global oil industry.
It estimates that $100 billion invested in either wind energy or solar energy – and deployed as energy for light and commercial vehicles – will produce significantly more energy than that same $100 billion invested in oil.
The implications, needless to say, are dramatic. It would signal the end of Big Oil, and the demise of an industry that has dominated the global economy and geo-politics, for the last few decades. And the need for it to reshape its business model around renewables, as we discuss here.
“If we are right, the implications would be momentous,” writes Kepler Chevreux analyst Mark Lewis.
“It would mean that the oil industry faces the risk of stranded assets not only under a scenario of falling oil prices brought about by the structurally lower demand entailed by a future tightening of climate policy, but also under a scenario of rising oil prices brought about by increasingly constrained supply. “
The main argument from Lewis is that oil prices could stay so low that it is no longer economic to bring in high cost new oil fields. But even if the oil price does rise, it will not be able to compete with renewables such as solar and wind.
The most striking conclusion is that by using wind or solar to charge electric vehicles, more energy is produced per dollar invested than with oil – in the case of onshore wind, it is four times as much energy for the same amount of money.
So how does Lewis produce his numbers?
He has developed a new concept of the energy return on capital invested (EROCI) for a potential outlay today of $US100bn. He asks how much energy would $US100bn purchase if invested in oil on the one hand, or in solar PV and wind energy on the other?
Table 1 above shows our calculations for the amount of gross and net energy that can be obtained from investing $US100bn in 2014 (i.e. based on current economics). In all cases, the calculations are based on a one-off investment with no reinvestment taken into account.
He defines gross energy as the amount of primary energy available before it is converted into useful energy in final consumption. Net energy, however, is the amount of energy available for final consumption after taking into account energy conversion and energy transmission losses. This includes the energy available for powering oil-fired cars and electric vehicles.
For oil, he has assumed investment opportunities in new projects with full breakeven costs (all- in capital costs, operating costs, and any royalties payable) of $US75/bbl and $US100/bbl, as these cover breakeven cost levels in the upper quartile of the industry cost curve and will account for a very significant share of the new investment opportunities. He assumes two different potential lifetimes for new oil projects (ten and 20 years), as some projects (e.g. deep-water) have shorter lifetimes than others (e.g. conventional onshore and oil sands).
For renewables, he assumes capital costs of $US3bn/GW for solar PV (Ed: seems high), $US1.5bn for offshore wind, and $US4.5bn/GW for offshore wind. He assumes annual load factors of 13% for solar, 25% for onshore wind, and 40% for offshore wind. All renewables investments are assumed to have project lifetimes of 20 years. (ED: In Australia, solar has a load factor of 18 per cent, wind is more than 35 per cent).
As table 1 shows, the gross energy of oil is higher than all the renewable sources over a 10 year period. But over 20 years, the relative economics of renewables improve, and onshore wind actually yields slightly more gross energy annually over 20 years than oil at a price of $US75/bbl and nearly 40 per cent more than oil at $US100/bbl (117TWh versus 85TWh).
However, if the analysis takes into account net energy yield, and the growing take-up of electric vehicles, then the picture is markedly different.
Internal combustion engines lose 75-80 per cent of the energy value of the oil input, while for EVs, converting electrical energy into battery-stored chemical energy and then back into electrical energy loses 25- 30 per cent of the original power input.
Lewis has therefore assumed a net energy yield from oil of 25%, and a net energy yield from renewable electricity for use in EVs of 70%. He has also adjusted for transmission losses – 2.5% transmission losses for solar PV, 5% for onshore wind, and 7.5% for offshore wind.
This means that the net energy yield for EVs powered by solar PV is here assumed to be 67.5%, for EVs powered by onshore wind 65%, and for EVs powered by offshore wind 62.5%. He assumes 10% capital-cost reduction in real terms by 2035 versus 2020 for wind, and for solar PV and offshore wind cost reductions of 15% to 2020 and a further 15% to 2035.
The picture of net energy yield is remarkably different, as can be seen on table 2 (below).
By 2020 all renewable technologies have a significantly superior net EROCI to that of oil at both $US100/bbl and $US125/bbl. “It is almost impolite to compare the net EROCI of oil with that of renewables by 2035,” Lewis notes.
Indeed, by that date, solar will be producing double the energy yield of oil for the same amount of money. For onshore wind, the amount of net energy produced will outstrip oil by a factor of nearly 6:1.
“Of course, there remain huge infrastructure challenges to be overcome – and paid for – if EVs are to realise their potential over the next two decades,” Lewis adds. “But our analysis of the net EROCI of oil versus renewables suggests that the balance of competitive advantage will shift decisively in favour of EVs over oil-powered cars over the next two decades.
“In turn, this would suggest that by the late 2020s or early 2030s renewables could be competing much more aggressively with the oil market’s marginal barrels for a share of Asia’s fast-growing road-transportation market (and especially China’s) than either the IEA or the oil industry itself is currently assuming.”
Source: RenewEconomy. Reprinted with permission.
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Recently, I saw a pro Nuclear banner o nthis site, interested in carbon-free energy I clicked. The infographic (below) showed that as Germany (current global PV leader) closed nuclear plants and went solar carbon output increased. I’d like to see some articles on cleantechnica regarding this. any ideas? http://www.nuclearmatters.com/body/Nuclear-Matters-Carbon-Free-infographic.pdf
And i found their citation. If you project using current mix of course it’ll be an increase. http://www.nuclearmatters.com/resources/reports-studies/document/Third_Way_Memo_-_Shutting_Down_Nuclear.pdf
CO2 output increased because they did not replace all of their nuclear with solar and other green sources. They had to replace some of the nuclear power with coal until they are able in the future to fully replace it with green sources. After what happened in Japan, they did not feel the risk of nuclear was worth it.
from your link:
“Germany immediately shut down 40% of its nuclear power generation.7 German
electric sector emissions jumped 4% from 2011 to 2012. U.S. emissions kept declining.”
That is a one year jump. But the article doesn’t state what has happened since. The article was written in 2014 so they could have easily included the Germany data for 2013. if they had they would have made renewables look a lot better.
Germany has now replaced all of the power lost from nuclear with solar and wind. The CO2 increase was only temporary. Cleantechnica has posted about this:
http://cleantechnica.com/2014/06/03/renewable-energy-growth-germany-nuclear-decline/
http://cleantechnica.com/2014/06/03/renewable-energy-growth-germany-nuclear-decline/
The export import balance graph in the last link clearly shows what has happened. Germany basically took one step back and then 3 steps forward.
Off topic.
i.e., nuclear troll
But it gives us an excuse to point out that the increase was temporary and Germany’s carbon output is now falling again.
It’s true. Making the decision to close nuclear plants faster than originally scheduled was follow by a slight increase in CO2 emissions. Of course that rise in emissions was also caused by a rise in natural gas prices, by a cold winter, and by other countries purchasing a lot of electricity from Germany.
That’s 2012 and 2013. Now it looks like Germany has replaced that lost nuclear generation with renewables and is back on track to be largely carbon neutral by 2050.
Would that more of us were doing as well….
We’ve covered that matter in the past, but it’s been awhile since there isn’t any real notable news. Natural gas prices rose, driving Germany to use coal instead of natural gas more. Also, massive nuclear closures resulted in greater use of coal/natural gas in the short term (from existing plants). You can’t just build 40 GW of solar & wind over night.
This is the order Germany has apparently decided to cut out non-renewables: nuclear, natural gas, coal. But those latter two could flip depending on market or regulatory matters.
Hi Zachary, Carbon Capture and storage (CCS) have been retrofitted onto a coal pp in Canada (Boundar Dam), has been installed in a greenfield coal pp (Kemper County), Is planned on a greenfield coal pp in UK (White Rose), is planned as a retrofit on the Petra Nova project (NRJ, Texas) and is being considered on many other projects. Coal can be largely decarbonized, which for those countries that will continue to rely on coal, is a very attractive GHG technology option.
What does CCS add to the cost of electricity produced?
What percentage of CO2 is captured?
How is the captured CO2 permanently removed from the carbon cycle?
Even if the answers to your questions are “Nothing”, “All” and “Turned into rocks”, coal burning still requires us to deal with toxic coal ash.
And we know that the real answers are “A lot”, “Less than 75%”, and “It’s not”.
I suspect Germany wants to cut out natural gas next because of the political problem of needing to buy it from Russia.
That’s export energy.
Belgium has lost 50% of it’s nuclear fleet (25% of it’s whole capacity). They have failed to invest in reliable renewables so far.
Could be a design fault in the generic Framatom reactors. France is already alerted. They better deploy wind and PV fast before there fleet gets even more expensive (negativ ROI overall.).
The other thing with nuclear is the low EROEI. Somewhere between 3-7, thats just to low compared to PV (12 and raising) and wind (20+ and around 1500 for future technology).
No future for nuclear.
“low compared to PV (12 and raising) and wind (20+”
Can you give me a reference for that?
I found a graph here, from 2009:
http://ftalphaville.ft.com//2009/04/30/55347/its-not-a-liquidity-crisis-its-an-energy-crisis-stupid/
That’s from 2009, but it seems more realistic, particularly the fact that a range of EROEI is shown for solar. That makes more sense to me, since manufacturing methods vary widely from ThinFilm PV to Crystalline Silicon PV, and even within those categories.
I also found this graph, which has solar at an EROEI of 12, as you said, but this is also from 2009, a very long 5 years ago:
http://en.wikipedia.org/wiki/File:Net_energy_cliff.gif
This one is way different and it is from 2011 (scroll down to graph):
http://8020vision.com/2011/07/01/solar-is-the-fastest-growing-industry-in-the-us/
Of particular note to me is the “Diminishing” Oil EROEI.
Also, around 1500 in the future for Wind?
http://europe.theoildrum.com/node/7014#comment-729639
The 1500 are for the kitegen carousel. The stem configuration or what skysails power is just launching should come in at around 350 Eroei.
EROEI is not very meaningful for wind and solar.
EI is important when one is considering energy sources which are limited and especially as we approach the end of supply. With wind and solar there’s no shortage of energy and won’t likely be for a few billion years.
Energy payback time is a more important metric because it tells us something about cost recovery. And it tells us something about how rapidly we can scale wind/solar relying only on energy from wind/solar.
EROEI is important in the way that we are using fosil resources to built renewable generation.
Isn’t energy payback time closely related anyways? If Energy payback time is higher than the lifetime we get an eroei under 1…energy sink.
So the energy payback time for a 30year kitegen would be a little under 15 days….or a month for 60yr life. Anyway…pretty good.
Please quit spamming.
To understand the bank’s analysis quickly, take a look at the energy flowcharts for the USA produced by Lawrence Livermore (link). They use the term “energy services” for the useful energy delivered to wheels, motors, lights, heaters, pumps and so on. Fossil fuels have very high waste upstream of this (60% or more); electricity much less, round 15-25%, in both cases depending on the use. Any analysis of energy demand that bases itself on gross or primary energy consumption is misleading because it fails to account for this automatic payoff of a shift to renewable electricity and electric traction.
Fossil can cry “no fair” in that the waste in solar and wind is invisible, their primary energy is just what they produce. The objection has no merit. Fossil fuel has extraction as well a environmental costs, and these should be in the equation. Wind that passes through a turbine unaffected has no or negligible impact on anything.
Oil prices low they cannot produce with a profit
Oil prices high they cannot compete with Wind power and Solar Power.
it is so clear that oil is done and over and history.
divest now
last one loses all.
How about $8billion in hyrdo vs. wind + solar? There is a dinosaur dam project in British Columbia called Site C that promises to devastate thousands of hectares of wildlife habitat, agricultural land and traditional First Nations territory. While the old boys at BC Hydro are having a hard time letting go of their pet project, many of us in BC are keen on imagining alternatives. Thoughts?
http://en.m.wikipedia.org/wiki/Site_C_dam
Andrew Weaver of the B.C. green party who is a nobel prize winner with the IPCC and a lead author on many of their studies, thinks site C should not be built..they should build wind turbines.
I want a Kitegen Carousel. They say they can do the 5GWe thing for 1.5Billion €.
eCat and LENR.
Tinfoil hat stuff.
What a hoot!
Let me offer a more reality based explanation.
The coal industry is dying. Best to get your money out while you can.
The oil industry is likely to show low growth, at best, going forward. US cars are rapidly improving in efficiency and the number of cars on the road is not growing. Airlines are becoming more efficient. There’s not likely to be much, if any, significant increase in demand.
As EVs and PHEVs grow in number demand will fall.
Large funds (universities, retirement funds, etc.) are under pressure to divest themselves of fossil fuel stocks which means sinking prices.
Best to start repositioning from a market sector that holds little to no opportunity for growth into sectors with higher growth potential.
This is simple financial logic. It does not take pink unicorn farts to explain what is happening.
and yet , President Obama pledged that the u.s. would lead the charge to combat climate change with as much as $100 billion invested annually to help the poorest countries shift away from fossil fuels. … it would seem to me that same 100 billion would build wind and solar farms across the country that would set the U.S. way ahead in energy production and cleaning up the problem in a very positve way … it seems a 100 billion is nothing, except when we are investing it back into the U.S. .. why is that ?
We’re reached a point in the US where wind and solar are becoming established industries. Wind is already our cheapest way to add new capacity to the grid and solar will soon join wind as the two cheapest.
All we need to at this point, I think, is to continue subsidies for a few more years. That’s set for solar. It’s not clear if Congress will assist wind further.
The government has done most of the bootstrapping for wind and solar in the US. Other countries could benefit from some help getting their renewable industries up and running.