Sudden Rush to Solar

Sudden Rush to Solar

Sudden Rush to Solar

Paul Gilding

Paul Gilding (Australian, born 1959) is an independent writer and corporate advisor. He was previously executive director of Greenpeace International (1993) and CEO and owner of strategy consultancy Ecos Corporation (1995–2008) and energy-efficiency compay Easy Being Green (2005–7). He wrote The Great Disruption (2011) and blogs at www.paulgilding.com.

By 2052, installation of renewable energy, particularly solar, will have swept the world, will be powering one-half of our energy generation, and will be in explosive development, fundamentally changing the global economy and geopolitical landscape. The process will be well under way by 2030. By then, the dramatic price reductions seen after 2010 will have accelerated sufficiently to enable renewable energy to overcome the powerful resistance to change by entrenched fossil-fuel interests.

In hindsight we will ask why not everyone saw that this was obviously going to happen. Solar energy and many other renewables are, after all, just another high-tech transformation—a process we have seen many times, and one we clearly understand.

Most proponents of new technologies, gripped by the excitement of what’s possible, overpromise on price and performance and then, in the early stages, under-deliver. This results in the early forecasts of the demise of the relevant old industry or approach—such as we saw with the paperless office, the end of newspapers and books, and the death of film cameras, all proving to be overconfident forecasts. While at first those in the threatened industry panic at the forecasts of their demise, they soon decide that things are not so bad after all, as they observe, during the under-delivery phase, the new industry failing to produce effective technology that people will accept at the right price.

Then, with time and investment, the new technology—supported by eager investors, many of whom get burnt but some of whom see spectacular success—finally breaks through with good products at the right price, and the old industry is swept away. This generally occurs much later than first forecast, but then much faster than expected.

Consider the transition from printed to electronic books. Whereas the first efforts to move into digital books via computers began in the 1970s, it wasn’t until 1998 that the first dedicated e-book readers were released. Take-up was still slow until mainstream products like the Sony and Kindle readers were released in 2006–7. It then took just four years before Amazon announced it was selling more e-books than printed books.

This explains how it has been and will be with renewable energy.

Even before governments have decided to take serious action on climate, the new energy industry is taking off. Even though the old joke is true—that solar power has been just twenty years away from being competitive for forty years—we are now seeing genuinely dramatic price drops and growth rates. It is still true that no mainstream body agrees that half of all energy can be renewable by 2050. Bodies like the IEA and Shell still suggest renewables will at best power 20%–40% of total energy demand. But it is the nature of the old to dismiss the potential of the new, and that is what we’ve seen with other new technologies.

All of this transition could and would happen through market forces alone, once prices start dropping and industry scales up. But the markets won’t have to do the job on their own. Some leading nations will provide helpful assistance through various forms of governmental intervention. A selection of progressive governments—including China—will make the change happen even faster than markets would otherwise deliver it.

From 2020 onward the scale of the threat posed to the global economy and society by climate impacts and resource constraints will become gradually clearer and more widely accepted. When denial that we have a system-wide problem ends, governments will be scrambling to accelerate the reduction of greenhouse gases.

One of their key responses will be to take strong measures to accelerate the elimination of old energy sources and replace them with renewable ones. This won’t be limited to making new power supply renewable. Progressive nations will consider also closing down old but operating nuclear and coal plants. But this won’t happen easily.

Societies are loath to dump past investments, since they are, after all, cheaper and better known than new ones. So this won’t immediately stop the momentum of climate change. But it will slow the slide toward an unmanageable future.

The economic and geopolitical implications of this economic and energy transition will be extraordinary. Some of these impacts will be unquestionably positive for all of society, but most will be chaotic and involve significant winners and losers.

One of the clear positives will be the broad availability of cheap and accessible energy in all countries. It may take a little longer than forty years, but in the end cheap solar power and heat will be available wherever the sun shines. While poor countries won’t drive the change, they will be great beneficiaries of action by countries such as China, and possibly some in Europe. The countries that act in this area will take new energy technologies to scale in their own self-interest—because they want a secure and clean energy supply and seek the economic advantage from being producers of renewable energy equipment. The result, however, will be global benefit, with all countries having freely available “fuel” from the sun, thus largely eliminating the issue of energy security and greatly reducing the financial burden of paying the ever-rising price for fossil-fuel imports.

However, some countries will be clear losers in this transition. Many countries in the Middle East and elsewhere will suffer dramatic loss of income as the world moves away from oil and coal. This will have considerable impact on geopolitical power and also on security issues, with countries changing governments as old regimes dependent on oil income fall from grace with their people for having managed the use of their countries’ wealth so poorly.

The economic consequences for companies and investors will also be dramatic. The financial markets will not manage this transition smoothly. They will at first continue to put a high economic value on fossil-fuel assets, ignoring the clear evidence of a large unpriced risk. This risk is best understood by considering that to have an 80% chance of achieving 2°C of warming (the target agreed to by all major countries), around three-quarters of all proven reserves of fossil fuels can never be burnt, thus making them largely without value. Given that these reserves currently sit on company balance sheets as assets, the financial shock of this risk being priced in will be dramatic and will no doubt occur suddenly—like most re-ratings of risk in the financial markets.6 Markets resist change just like people do, with no one wanting to be first to act, even if they can see it coming. Nor do they want to be last, and this is why the collapse in carbon-asset values will occur suddenly when it does, with wide-ranging economic consequences.

While I believe society will respond dramatically in the end, the run-up over the next forty years will be chaotic, confusing, and disruptive. For some time yet, at least one decade, perhaps even more, many will continue to deny the scale of the threat to the global economy posed by resource constraint and ecological impact. Despite the warnings of many eminent market participants such as Jeremy Grantham7 that we have entered a new paradigm, the delusion that this will somehow “sort itself out” will be held on to tightly. But in the end, the laws of physics will determine that endless growth in the use of fossil energy cannot and will not continue.