A stunning new report from French-based global banking group BNP Paribas signals the death toll for the petrol industry – a mixture of solar, wind and electric vehicles can deliver more than six times the “mobility” returns on each dollar invested than oil.
The report, entitled “Wells, Wires and Wheels”, has been described as “seismic” by the likes of solar pioneer and entrepreneur Jeremy Leggett because he says it demonstrates the huge capital efficiency of wind and solar and EVs over the petroleum industry.
This is because of the low costs of renewables, but also because of the huge losses sustained by petrol and diesel in transportation of the fuel, in refining, and mostly in losses through the engine (most of the energy is lost through heat).
The actual amount of energy delivered to actually move the car or other forms of transport is vastly inferior than renewables and EVs. So much so that the report suggests that the case for renewables and EVs over petroleum investments is “irresistible”.
“We calculate that to get the same amount of mobility from gasoline as from new renewables in tandem with EVs over the next 25 years would cost 6.2x-7x more,” says the report, written by respected analyst Mark Lewis.
“Indeed, even if we add in the cost of building new network infrastructure to cope with all the new wind and/or solar capacity implied by replacing gasoline with renewables and EVs, the economics of renewables still crush those of oil.
“Extrapolating total expenditure on gasoline in 2018 for the next 25 years would see $US25 trillion spent on mobility, whereas we estimate the cost of new renewables projects complete with the enhanced network infrastructure required to match the 2018 level of mobility provided by gasoline every year for the next 25 years at only $US4.6 trillion to $US5.2trillion.”
Further, Lewis suggests that the only way that the petroleum industry could compete with renewables and EVs is if it could extract oil at around $US9-10 a barrel. The problem is, mid point return for most of the oil industry’s planned investments is a price of $US60 a barrel.
And his calculations are based on a rather conservative view of the costs of wind, solar and batteries – ranging from $US60/MWh to $US70/MWh for wind and solar, and modest capacity factors of 25 per cent for onshore wind and 15 per cent for solar.
Lewis suggests that the oil companies might be better off returning their money to shareholders, rather than continuing as usual.
He says that while the oil industry has the advantage of incumbency, this may be time limited because of the rapidly changing nature of costs, and because it has never before faced the kind of threat that renewable electricity in tandem with EVs poses to its business model.
These, of course, are a competing energy source that (i) has a short-run marginal cost (SRMC) of zero, (ii) is much cleaner environmentally, (iii) is much easier to transport, and (iv) could readily replace up to 40% of global oil demand if it had the necessary scale.
“We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors,” he notes in his summary.
“We think that the implications of all this for both policy-makers and the oil majors are clear and compelling,” he says.
For policymakers, the economics of renewables are such now that there is a chance to accelerate the energy transition and the environmental and health bene ts that come with it by providing targeted support to:
– EVs, via tax incentives (as has proven very successful in Norway, for example)
– Charging infrastructure for EVs (the lack of charging infrastructure is a big obstacle to the faster adoption of EVs)
– Energy-storage technologies (as renewables increase their share of overall power generation, storage capacity will be the key to enabling continuing increases in renewables capacity)