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Thursday, June 14, 2018

Coal's 20-Year Reign Masks a Brewing Revolution [feedly]

Coal's 20-Year Reign Masks a Brewing Revolution

BP's latest Statistical Review of World Energy, released Wednesday, contains a chart that could leave environmentalists feeling somewhat flat (much like the lines):

Flat Earth

BP's chart of the world's sources of electricity generation shows little apparent movement over the past 20 years, despite growing concern about climate change

Source: Adapted from BP's Statistical Review of World Energy 2018

Note: Excludes "other" sources of power generation (these comprised 0.7 percent in 2017.)

Coal's share of the world's electricity mix was about 38 percent in 1997, and in 2017 it was about ... 38 percent. 1  Fossil fuels overall have actually increased their share, from 63 percent to 65 percent. Not exactly what folks in Paris or (even further back) Kyoto had in mind.

When it comes to the global energy market, though, absolute numbers do tend to shift very slowly – its sheer scale makes a supertanker look like a Ferrari. Which means it's also important to look at what is happening on the margin. And here, there are clear signs of a shift. 

In any market, growth is as important as absolute scale. Any CEO telling investors their company is so big already that growth doesn't matter would soon be in for an awkward meeting with the board. Growth is a signpost to the future – albeit not infallible – and a magnet for investment (see this for further explanation, looking at the subject of electric vehicles.)

Beneath the headline numbers about the mix of global power generation, here is the mix of global power-generation growth:

A Picture Of Change

The annual change in global power generation shows a much clearer change in the share of different fuels and technologies

Source: BP

Note: Excludes "other" sources.

There's a lot going on in there. But the most noticeable aspect is how the bars shift from being dominated by the blue and black of coal and natural gas in the years leading up to the financial crisis, to a much more changeable mix, including the rapid growth of that pink element for wind and solar power.

To make that a bit clearer, the chart below shows the average annual change for the different power sources over some longer and shorter time frames. I've grouped coal and oil together, as well as hydropower, nuclear power and other non-wind or solar renewables, to make things a bit clearer.

Rates Of Change

The shift in the mix of global power-demand growth over the past decade is clear, even including last year's increase in coal burning

Source: BP, Bloomberg Opinion analysis

Note: Average annual change in global power generation by fuel/technology. Excludes "other" sources.

In the decade prior to 2008, fossil fuels accounted for 77 percent of the growth in global power generation. That has dropped to 55 percent for the period since then, falling below 40 percent looking at just the past five years. Coal had a resurgence last year. Even so, the 43 percent share of growth for fossil fuels was less than wind and solar's 45 percent.

The point here isn't to dismiss BP's original chart, which cannot fail to catch one's eye. It is sobering that two decades of efforts and actions to shift the global power sector to a more sustainable footing haven't moved the overall mix more significantly.

Equally, to come away with the impression that things are static would be to misread, or half-read, the data. For example, if things were fixed so firmly, it's unlikely that, despite a 7 percent increase in U.S. coal production last year, the Trump Administration would be dusting off a law from the Truman era to justify bailouts of power plants burning the stuff (notably, all that extra coal output was shipped overseas).

This isn't just about coal; look back at that chart and note how natural gas' share of growth in power generation has been squeezed over the past few years. Competition among fuels and technologies has intensified dramatically and is accelerating as costs for renewable sources, in particular, have fallen.

Incumbency identifies history's winners. Growth, even at a nascent stage, identifies what comes next – and attracts investment accordingly.

This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.

  1. My analysis of BP's power generation numbers excludes "other" sources for which I don't have long-run data. However, these are marginal, accounting for just 0.7 percent of the mix in 2017.

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