BP: Renewables Growing Fast But Can't Compete Without Help

Renewable forms of energy are growing far faster than any other form of energy, a BP economist said in Chicago last week, but are unlikely to significantly impact the world's reliance on fossil fuels without continued government interventions, such as a price on carbon.
The world's oil consumption grew by less than 1 percent in 2011, natural gas by 2 percent, coal by about 5 percent, and nuclear reactors contributed 4 percent less energy in the wake of the Fukushima disaster, according to Mark Finley, BP’s general manager for global energy markets.
Those rates are dwarfed by worldwide growth in energy produced by wind, solar and geothermal sources:
"Those forms of renewable energy combined grew by about 18 percent last year, the tenth year in a row of double-digit growth," Finley told about 75 people gathered at the University of Chicago's downtown Gleacher Center.
"And the volume of energy contributed by these energies is bigger than the growth of the biggest fuel in the world, oil, so it is beginning to make a difference."
But renewables make up such a small slice of the world's energy portfolio now—only about 2 percent—that even at such a blistering growth rate they are unlikely to significantly displace fossil fuels in the next two decades.
"Renewables by 2030 get to a market share that's roughly equivalent to what we see today for nuclear and hydro, in the ballpark of six to seven percent," Finley said. (In fact, nuclear reactors generated about 5 percent of the energy consumed in 2011, hydro contributed about 6 percent according to BP's Statistical Review of World Energy June 2012.)
"Renewables in our outlook are by far the fastest growing fuel. They grow at 5 times the underlying rate of global energy demand, and yet it's from such a small base that in our outlook fossil fuels, which today account for about 85 percent of the world's energy mix, still meet 80 percent of the world's energy demand in 2030, even with aggressive growth of renewables."
Finley’s appearance was sponsored by the Energy Policy Institute at Chicago and Young Professionals in Energy
Most of the growth of renewables occurred in wealthy developed nations—such as the United States, Germany, Spain and China—that subsidize renewable energy.
"What we can observe is that renewables are growing very rapidly already around the world, most typically in places where the governments can afford the subsidies needed to help these fuels compete. The key challenge going forward is: when things grow fast, subsidies get expensive fast. So can these forms of energy achieve economies of scale that will allow them to compete without subsidies?
"That is the real question."
And part of the answer to that question will depend upon pricing carbon, whether through a carbon tax or a cap and trade program. Europe has a price on carbon, via cap and trade, but it burned more coal last year because its price on carbon is so low in the wake of the recession and because it needed coal to make up for the disruption of oil exports from Libya.
BP expects government policies to continue to affect the growth of renewables, Finley said, but as subsidies become more expensive, a price on carbon will become more important, in the long term, than subsidies.
"The other big issue of course is climate change, and a price on carbon, all else being equal, seems like it would help the cost competitiveness of most renewable forms of energy. We do believe that there will be continued government policy action to deal with climate change—haltingly, and maybe not as coordinated as we would have thought ten years ago—but we do continue to believe that there will be some action on the climate front.
"Pricing carbon is, I think, a key issue around renewables going forward."
Another corporation in the business of economic forecasting, Lloyd's of London, has predicted different criteria for the success of renewables: energy demand in the Third World will bring the price of oil far higher than the price of renewable energy.
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