$100 Billion Invested In Oil vs Renewable Energy

Don’t take my word for it! A French investment bank, Kepler Chevreuxhas, has produced a ground-breaking piece of analysis which should have considerable implications for the continued viability of the global oil industry. The investment bank estimates that $100 billion invested in the two key renewable industries; wind energy or solar energy and deployed as energy for light and commercial vehicles, will produce significantly more energy than that same $100 billion invested in oil for the vehicles.

renewable energy solar panels wind power 12784025 300x3001 $100 Billion Invested In Oil vs Renewable Energy

Oil, of course, has dominated global economies and geopolitics for half a century and more.

 One of Kepler Chevreux’s main analysts, Mark Lewis, said: 

“If we are right, the implications would be momentous. It would mean that the oil industry faces the risk of stranded assets not only under a scenario of falling oil prices brought about by the structurally lower demand entailed by a future tightening of climate policy but also under a scenario of rising oil prices brought about by increasingly constrained supply. “

The arguments have a twin thrust. as existing oil fields begin to run dry, it’s just too expensive to look for and develop new fields, especially if oil prices are low. While onshore wind farms can be unpopular with some communities and off-shore wind farms being more expensive to build and maintain, it may be surprising to learn that by using wind or solar to charge electric vehicles, more energy is produced per dollar invested than with oil  – in the case of onshore wind, it is four times as much energy for the same amount of money!

Obviously, this is not all conjecture, there has to be an economic model on which the analysis is based. Lewis has developed a new concept of the energy return on capital invested (EROCI) for a potential outlay today of $US100bn. The bottom line is how much energy would $US100bn purchase if invested in oil on the one hand, or in solar power and wind energy on the other?

The table below (Table 1) shows the amount of gross and net energy created from a one-off investment of 100 billion dollars this year with no re-investment (to simplify matters).

kepler oil 1 $100 Billion Invested In Oil vs Renewable Energy

In the table gross energy = the amount of primary energy available before it is converted into useful energy in final consumption. Net energy = the amount of energy available for final consumption after taking into account energy conversion and energy transmission losses including the energy available for powering oil-fired cars and electric vehicles. Other assumptions are set out in the notes at the end of this article.

You will see from the table that the gross energy of oil is higher than all the renewable sources over a 10 year period. But over a 20 year period, the relative economics of renewables improve and onshore wind actually edges ahead by yielding slightly more gross energy annually over 20 years than oil at a price of $US75/bbl and nearly 40 percent more than oil at $US100/bbl (117TWh versus 85TWh).

But if one takes into account net energy yield and the increase in electric vehicles and support for them, the picture changes significantly.  It’s basic science/physics: The internal combustion engines lose 75-80 percent of the energy value of the oil input, while for Electric Vehicles (EVs), converting electrical energy into battery-stored chemical energy and then back into electrical energy loses only  25- 30 percent of the original power input. That means that oil delivers a net energy yield of 25% compared to the net energy yield from renewable electricity for use in EVs of 70%. Lewis has also made an adjustment for transmission losses from power creation source into actual energy used- 2.5% transmission losses for solar PV, 5% for onshore wind and 7.5% for offshore wind.

gem car 300x1931 $100 Billion Invested In Oil vs Renewable Energy

This means that the net energy yield for EVs powered by solar PV is here assumed to be 67.5%, for EVs powered by onshore wind 65% and for EVs powered by offshore wind 62.5%.  (He also assumes 10% capital-cost reduction in real terms by 2035 versus 2020 for wind and for solar PV and offshore wind cost reductions of 15% to 2020 and a further 15% to 2035).

Thus we have the net energy yield shown in the table below

kepler oil 2 $100 Billion Invested In Oil vs Renewable Energy

This table shows that by 2020 all renewable technologies have a significantly superior net EROCI to that of oil at both $US100/bbl and $US125/bbl. By 2035, solar will be producing double the energy yield of oil for the same amount of money. For onshore wind, the amount of net energy produced will outstrip oil by a staggering factor of nearly 6:1.

Getting realistic, one has to accept that there would need to be significant infrastructure changes to be effected challenges to be overcome (all costing money) if EVs are to realise their potential within 20 years. But as the net EROCI shifts year on a year away from oil, the balance of competitive advantage will shift decisively in favour of EVs over oil-powered cars over the next two decades. Knowing that must give encouragement and incentive to those Governments who are looking closely at developing EVs, particularly in Asia.

alke xt electric vehicles 300x2121 $100 Billion Invested In Oil vs Renewable Energy

Note:

“For oil, Lewis has assumed investment opportunities in new projects with full breakeven costs (all-in capital costs, operating costs and any royalties payable) of $US75/bbl and $US100/bbl, as these cover breakeven cost levels in the upper quartile of the industry cost curve and will account for a very significant share of the new investment opportunities. He assumes two different potential lifetimes for new oil projects (ten and 20 years), as some projects (e.g. deep-water) have shorter lifetimes than others” (e.g. conventional onshore and oil sands).

“For renewables, Lewis has assumed capital costs of $US3bn/GW for solar PV (Ed: seems high), $US1.5bn for offshore wind and $US4.5bn/GW for offshore wind. He assumes annual load factors of 13% for solar, 25% for onshore wind and 40% for offshore wind. All renewables investments are assumed to have project lifetimes of 20 years”. (ED: In Australia, solar has a load factor of 18 per cent, the wind is more than 35 per cent).