French investment bank Kepler Chevreux rocked the energy and financial community in late 2014 when it issued a report saying that US$ 100 billion invested in wind energy would deliver more usable energy when used to power passenger vehicles and light trucks than the same amount of investment in oil. Since then that message has begun to resonate from London to Zurich and from Bay Street to Wall Street as the price of oil continues its calamitous collapse
By Paul Gipe, USA
The report by Mark Lewis, Toil for oil spells danger for majors (1), issued a warning to oil companies and their investors that oil could become a stranded asset as renewables – especially onshore wind energy – become more cost-effective. Lewis, a seasoned analyst and former head of energy research at Deutsche Bank, argues that if the price of oil stays low, getting it out of the ground is increasingly unprofitable, but if prices increase oil becomes ever more uncompetitive with other resources such as wind and solar energy.
Lewis devises a new take on the common energy return on energy invested comparison: EROCI (energy return on capital invested). He compares what you get by investing US$ 100 billion in the oil industry or making the same investment in various renewable technologies.
In the short term, the gross return on investment in extracting oil is more beneficial. However, over the typical 20-year life of the projects Lewis weighed, onshore wind was competitive with oil at US$ 75 per barrel, and 40% more cost-effective than oil at US$ 100 per barrel.
Yet it was when Lewis turned to what the oil is used for, transportation, that Kepler Chevreux reached their startling conclusions. Lewis calculated the net energy yield from various investments relative to driving light vehicles (passenger cars and light trucks). He took into account the low conversion efficiency of oil to mobility from internal combustion engines as well as the losses in powering electric vehicles (EVs). The losses in EVs occur both in the transport of electricity and in the conversion of electricity in the vehicle. Nevertheless, Lewis found that onshore wind energy is more than three times more cost-effective than oil at US$ 100 per barrel. Onshore wind is as cost-effective as oil in transportation when oil is trading at US$ 30 per barrel.
The cost-effectiveness of renewables and EVs will only continue to increase, Kepler Chevreux’s report emphasises, making further investment in extracting oil a losing proposition.
Negotiators left the Paris climate conference warning the world that it must wean itself from fossil fuels, including oil in transportation. For the financial community the message is stark: invest in renewables now or watch your investment in fossil fuels become stranded.
This is an extract from Paul Gipe’s new book, Wind Energy for the Rest of Us: A Comprehensive Guide to Wind Power and How to Use It, scheduled for release later in 2016. For more on Gipe and his work see www.wind-works.org.