Well, well, well.
Rupert Murdoch’s Wall Street Journal finally caught up to what I’ve been saying for a decade or more.
Brutal prediction for the future of the oil industry.
Since Donald Trump’s election, clean energy stocks have plummeted, major banks have pulled out of a U.N.-sponsored “net zero” climate alliance, and BPannounced it is spinning off its offshore wind business to refocus on oil and gas. Markets and companies seem to be betting that Trump’s promises to stop or reverse the clean energy transition and “drill, baby, drill” will be successful.
But this bet is wrong. The clean energy revolution is being driven by fundamental technological and economic forces that are too strong to stop. Trump’s policies can marginally slow progress in the U.S. and harm the competitiveness of American companies, but they cannot halt the fundamental dynamics of technological change or save a fossil fuel industry that will inevitably shrink dramatically in the next two decades.
Our research shows that once new technologies become established their patterns in terms of cost are surprisingly predictable. They generally follow one of three patterns.
The first is a pattern where costs are volatile over days, months and years but relatively flat over longer time frames. It applies to resources extracted from the earth, like minerals and fossil fuels. The price of oil, for instance, fluctuates in response to economic and political events such as recessions, OPEC actions or Russia’s invasion of Ukraine. But coal, oil and natural gas cost roughly the same today as they did a century ago, adjusted for inflation. One reason is that even though the technology for extracting fossil fuels improves over time, the resources get harder and harder to extract as the quality of deposits declines.
There is a second group of technologies whose costs are also largely flat over time. For example, hydropower, whose technology can’t be mass produced because each dam is different, now costs about the same as it did 50 years ago. Nuclear power costs have also been relatively flat globally since its first commercial use in 1956, although in the U.S. nuclear costs have increased by about a factor of three. The reasons for U.S. cost increases include a lack of standardized designs, growing construction costs, increased regulatory burdens, supply-chain constraints and worker shortages.
A third group of technologies experience predictable long-term declines in cost and increases in performance. Computer processors are the classic example. In 1965, Gordon Moore, then the head of Intel, noticed that the density of electrical components in integrated circuits was growing at a rate of about 40% a year. He predicted this trend would continue, and Moore’s Law has held true for 60 years, enabling companies and investors to accurately forecast the cost and speed of computers many decades ahead.
Clean energy technologies such as solar, wind and batteries all follow this pattern but at different rates. Since 1990, the cost of wind power has dropped by about 4% a year, solar energy by 12% a year and lithium-ion batteries by about 12% a year. Like semiconductors, each of these technologies can be mass produced. They also benefit from advances and economies of scale in related sectors: solar photovoltaic systems from semiconductor manufacturing, wind from aerospace and batteries from consumer electronics.
Solar energy is 10,000 times cheaper today than when it was first used in the U.S.’s Vanguard satellite in 1958. Using a measure of cost that accounts for reliability and flexibility on the grid, the International Energy Agency (IEA) calculates that electricity from solar power with battery storage is less expensive today than electricity from new coal-fired plants in India and new gas-fired plants in the U.S. We project that by 2050 solar energy will cost a tenth of what it does today, making it far cheaper than any other source of energy.
At the same time, barriers to large-scale clean energy use keep tumbling, thanks to advances in energy storage and better grid and demand management. And innovations are enabling the electrification of industrial processes with enormous efficiency gains.
The falling price of clean energy has accelerated its adoption. The growth of new technologies, from railroads to mobile phones, follows what is called an S-curve. When a technology is new, it grows exponentially, but its share is tiny, so in absolute terms its growth looks almost flat. As exponential growth continues, however, its share suddenly becomes large, making its absolute growth large too, until the market eventually becomes saturated and growth starts to flatten. The result is an S-shaped adoption curve.
The energy provided by solar has been growing by about 30% a year for several decades. In theory, if this rate continues for just one more decade, solar power with battery storage could supply all the world’s energy needs by about 2035. In reality, growth will probably slow down as the technology reaches the saturation phase in its S-curve. Still, based on historical growth and its likely S-curve pattern, we can predict that renewables, along with pre-existing hydropower and nuclear power, will largely displace fossil fuels by about 2050.
For decades the IEA and others have consistently overestimated the future costs of renewable energy and underestimated future rates of deployment, often by orders of magnitude. The underlying problem is a lack of awareness that technological change is not linear but exponential: A new technology is small for a long time, and then it suddenly takes over. In 2000, about 95% of American households had a landline telephone. Few would have forecast that by 2023, 75% of U.S. adults would have no landline, only a mobile phone. In just two decades, a massive, century-old industry virtually disappeared.
Meanwhile, Trump’s promises of a fossil fuel renaissance ring hollow. U.S. oil and gas production is already at record levels, and with softening global prices, producers and investors are increasingly cautious about committing capital to expand U.S. production.
The energy transition is a one-way ticket. As the asset base shifts to clean energy technologies, large segments of fossil fuel demand will permanently disappear. Very few consumers who buy an electric vehicle will go back to fossil-fuel cars. Once utilities build cheap renewables and storage, they won’t go back to expensive coal plants. If the S-curves of clean energy continue on their paths, the fossil fuel sector will likely shrink to a niche industry supplying petrochemicals for plastics by around 2050.
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