Three Trends Have Radically Redefined the Energy Market

Michael Liebreich, the founder of Bloomberg New Energy Finance, set out the trends upending the global energy markets and ushering in what he termed an “age of plenty.” He said:

1. Cheap fossil fuels are here to stay because production costs are tumbling.

2. Intermittent renewables will dominate electricity supply by 2040, with huge challenges for grid managers.

3. Electricity demand is flattening out, losing its link with economic growth.

The implication is that energy will be plentiful for years to come, Liebreich said in a presentation Tuesday at the research group’s conference in London. Oil will linger closer to $50 a barrel than to $90, and renewables will gain market share, he said.

“There has been an enormous amount of innovation in the unconventional gas industry,” Liebreich said. “The cost reductions have been similar to what’s happening in solar.”

Here’s what he identified:

The cost of shale gas is plunging rapidly …

… and each well is producing more.

Renewables costs are falling to the level of fossil fuels:

The chart above shows forecasts for the cost of building and operating a new power plant in each technology. Rising costs for running a coal plant and falling solar panel prices mean photovoltaics may rival fossil fuels on price within 10 years, according to Bloomberg New Energy Finance.

Renewables will grab market share everywhere:

Electricity demand is flat, falling short of forecasts:

All those LED light bulbs are starting to have an impact. Energy-efficient technologies of all kinds are squeezing electricity demand. The chart above shows Australia’s experience. Actual power consumption is shown by the green line. The gray lines show demand forecasts made each year since 2010 by regulators, and the blue line represents their most recent forecast.

Together, the trends may hit coal hardest, as curbs on pollution drive up the cost of burning the dirtiest fossil fuel.

“There’s plentiful supply and weak demand,” Liebreich said. “The price of coal is on a gentle glide path toward the shutting of large amounts of capacity.” Bloomberg