BP Energy Outlook: Renewables set to grow ‘faster than any fuel in history’

Oil giant publishes annual report setting out a range of scenarios for the energy sector, ranging from Pars Agreement compatible decarbonisation to soaring global energy demand

Renewables are set to penetrate the global energy system “faster than any fuel in history” according to the latest Energy Outlook forecast from BP, which dramatically ramps up the role wind and solar power will play in delivering the world’s energy over the next 20 years.

Published today, the annual Energy Outlook report sets out a range of scenarios for the future development of the energy industry that highlight both the rapid expansion of the renewables industry and the likelihood global greenhouse gas emissions will keep rising in defiance of international targets.

Under its ‘Evolving Transition’ (ET) scenario, which is based on government policies and technologies progressing largely in line with recent trends, is widely regarded as a base case scenario.

According to this year’s ET scenario BP suggests global energy demand will grow by around a third through to 2040, largely driven by continued rapid economic growth in Asia.

But more of this energy demand is forecast to be met by renewables than ever before. The company envisages 85 per cent of the growth in energy supply being delivered by renewables and natural gas, with renewables becoming the largest source of global power generation by 2040.

“The pace at which renewable energy penetrates the global energy system is faster than for any fuel in history,” the report states.

At the same time the scenario predicts global coal demand will remain flat and oil demand will grow for around 10 years before plateauing as efficiency gains and the emergence of clean technologies accelerate.

Thanks in part to the rise of clean power, emissions are set to grow more slowly than in previous forecasts. BP said today CO2 emissions from energy use are forecasted to grow by only seven per cent by 2040 – last year’s Outlook predicted a 10 per cent growth in emissions by the same date.

However this will almost certainly still be enough to ensure the world breaches the emissions reductions goals of the Paris Agreement.

BP said the scenario “signal[s] the need for a comprehensive set of policy measures to achieve a substantial reduction in carbon emissions”.

Meanwhile BP has also radically reassessed the role of China in the world’s energy mix, revising down the country’s predicted energy demand in 2040 by a full seven per cent this year as the country “adjust to a more sustainable pattern of economic growth”. Much of this downward revision was fuelled by a reassessment of China’s industrial energy demand, which is being curbed thanks to business investments in energy efficiency and an economy-wide shift away from the most energy-intensive industrial activities.

In fact, since 2014 BP’s outlook for China has shifted significantly. BP has revised down China’s expected industrial demand by 22 per cent, and its coal demand by 37 per cent, over the period, delivering a four per cent downward revision to its expectations for global energy demand.

“The shift in China’s fuel mix directly accounts for roughly 80 per cent of the downward revision to global coal consumption, and around a third of the upward revision to the outlook for renewables over the past five years,” BP noted. “The overall impact on renewables is even greater since the quicker adoption of renewable energy in China helps to drive down the costs of wind and solar energy as they move down their learning curves more quickly, increasing the penetration of renewables in other parts of the world.”

Nevertheless, China is set to remain as the world’s largest consumer of energy in 2040, challenged for the title only by India.

However, the report also acknowledges the huge uncertainties facing the energy industry as the clean energy transition accelerates and pressure on governments to deliver bolder climate policies intensifies.

“The Outlook again brings into sharp focus just how fast the world’s energy systems are changing, and how the dual challenge of more energy with fewer emissions is framing the future,” said BP chief executive Bob Dudley. “Meeting this challenge will undoubtedly require many forms of energy to play a role.”

Alongside the ‘Evolving Transition’ scenario, BP sets out a ‘more energy’ scenario where governments seek to more rapidly increase energy access in developing economies, a ‘less globalisation scenario’ where trade disputes and protectionism dampen GDP growth and fuel fears over energy security, and a ‘rapid transition’ scenario where governments deliver more ambitious decarbonisation policies that are broadly in line with the Paris Agreement.

“The rapid transition scenario is the combination of analyses throughout the Outlook which brings together in a single scenario the policy measures in separate lower carbon scenarios for industry and buildings, transport and power,” BP explained. “Doing so results in around a 45 per cent decline in carbon emissions by 2040 relative to current levels – which is broadly in the middle of a sample of external projections with claim to be consistent with meeting the Paris climate goals.”

Under the scenario steep emissions reductions are delivered through rapid gains in energy efficiency, a faster switch to lower carbon fuels, higher carbon prices, and the emergence of a CCUS industry.

However, it argues that even under this scenario the bulk of the emissions reductions come from the power sector and cuts from the transport sector through to 2040 remain relatively small.

“Polices aimed at the power sector are central to achieving a material reduction in carbon emissions over the next 20 years…most of the low-hanging fruit in terms of reducing carbon emissions is outside of the transport sector,” said BP’s group chief economist Spencer Dale.

BP also warns that even if the world moves to a Paris Agreement compatible decarbonisation trajectory further steep emissions cuts will be needed beyond 2040, including the development of negative emissions technologies.

In addition, the report highlights the growing importance of demand for plastic to the oil industry, projecting that the non-combusted use of liquid fuels in industry, particularly as a feedstock for petrochemicals, will prove the single largest market over the next 20 years. As such, it envisages a scenario where the regulation of plastics is tightened quickly in the coming years leading to a worldwide ban on the use of all single-use plastics from 2040 onwards.

The report notes that such a scenario would lead to lower than anticipated demand for oil, but notes that the full impact on the environment would depend on the alternative materials that are used in place of single-use plastics.

The Outlook report is now set to be pored over by analysts, investors, and environmental campaigners, who have in the past accused BP of systematically under-estimating the pace of the clean tech roll out and talking up the prospects for fossil fuel demand in the coming decades, even as it has moved to increase its investment in low carbon technologies.

Source: Business Green