Smart Money Should Be Investing in Renewables, Not Fossil Fuels

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Once you have paid for the panels or turbines, renewable power is almost free.

Those commies and treehuggers at the Financial Times and BNP Paribas Asset Management are at it again, suggesting that investing in oil and gas is a bad idea, and that renewables are where the smart money is going. Mark Lewis, BMP Paribas Head of Sustainability Research, writes in a post titled Renewable energy is good money, not just good for the earth:

The reason why wind and solar energy pose such a threat to the energy system established over the past 100 years is simple: they have a short-run marginal cost of zero. In other words, when the wind blows and the sun shines, the energy itself arrives for free.

The costs of wind and solar are all upfront, and they have been going down every year. That's not the case with oil and gas, which needs continuous investment. Much of the action in oil and gas these days is in fracking, and it turns out that many of the drillers are in trouble. One major driller is slowing down because it is going way over budget. According to Bloomberg, "It’s the latest sign that companies in the vanguard of the U.S. shale boom face fundamental issues with their business model. With shale-well output falling off by as much as 70% in the first year, drillers need to pedal faster and faster just to maintain output."
Mark Lewis and BNP Paribas did an analysis of an imaginary investor who had a hundred billion bucks lying around, looking at whether it should be invested in oil or renewables. They found "that for the same capital outlay, wind and solar projects will produce 3 to 4 times more useful energy at the wheels than oil will at $60 a barrel for diesel-powered vehicles."

As electric vehicles proliferate, the fact that they cost so much less to fuel up with cheap off-peak electricity means that oil will have to drop to about $10 per barrel to be competitive. Lewis predicts that electric vehicles will cost the same as ICE-powered cars by 2022, and their operating and maintenance cost advantages will cause demand to increase dramatically. "The oil industry today enjoys massive scale advantages over wind and solar. But this advantage is now one only of incumbency and time limited."

And people in Alberta wonder why nobody wants to invest in their expensive oil sands projects and blame Justin Trudeau for their problems. Mark Lewis writes in the report: "We conclude that the economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline, with far-reaching implications for both policymakers and the oil majors."

The simple math is that their oil is very expensive, and it's hard to compete with free.