Guest post by Kingsmill Bond, new energy analyst at Trusted Sources (research & consultancy)

The orthodox view is that energy transitions are slow, and that this one will be no different. In reality, the new energy revolution will be fast, disruptive, and, above all, soon. By 2020 Trusted Sources expects fossil fuel demand to peak, leading to disruption in sectors across the world, from automotive and oil to transportation and machinery.

The orthodox view, and the one which forms the background for most thinking about the future of energy, is that energy transitions play out over decades.  New energy sources such as coal, oil, or gas were able to grow rapidly in their early years, but as soon as they reached 1% of global energy supply their growth rate slowed, and it took decades to reach even 10%.  The assumption is that new energy sources need to make up a large share of total energy supply to have an impact on the existing energy system, and that renewables will follow the same path as fossil fuels.  The implication is that incumbent energy producers need not worry too much about the rise of solar, wind or electric vehicles because their impact will not be felt for many years.

Share of global energy supply versus years taken to get there

Source:  BP

There are, however, a number of major flaws in this idea of business as usual.  The first issue is that markets are moved not by size but by change, which is two orders of magnitude lower.  Global energy demand in 2015 was 13,000 mtoe, but the growth in demand was just 1% of this, 130 mtoe.  An early victim of the transition was coal; demand is only a little below its all-time peak, and yet the shift from growth to decline has caused disruptive change.  There have been many examples where the arrival of new energy sources rapidly wiped out growth in demand for old energy, and we show below how demand for power from steam in the UK fell almost as soon as electricity started to challenge it.

Energy demand for power in the UK (mtoe)

Source:  Fouquet

The second flaw in the orthodoxy is that renewables are not the same as fossil fuels.  Fossil fuels are available only in a limited number of places, and the more you extract the harder it gets.  Renewables are of course available everywhere, and the more you build the cheaper they get.  As a result, the growth rate of renewable energy supply is far higher than that of fossil fuels at an analogous stage, and growth is highly likely to be maintained at elevated levels for years to come.

Annual growth rate after reaching a 10 mtoe threshold

Source:  BP, TSRP estimates

And the third flaw is that the world is different.  During the twentieth century, global energy demand grew at 3% a year.  Energy demand growth in 2015 fell to 1%, a level the IEA expects to last until 2040.  In the past, the global growth of new technologies was slow because change was led by small countries like the United Kingdom, while China and India did not change at all.  Now of course, renewables are being embraced everywhere.  Meanwhile, every country is seeking to reduce fossil fuel consumption, either in order to meet its COP21 commitments, or in order to reduce local pollution and enhance energy security.

Global annual energy demand growth in period ending

Source:  BP, IEA

So if the orthodoxy is clearly wrong, can we replace it with another view that is more accurate? Trusted Sources believes that it is possible to make some simple observations about how the energy system is changing which lead to fairly radical conclusions. The first assumption is that demand growth does indeed continue to grow at around 1%; if anything the risks are probably to the downside.  The second assumption is that solar and wind supply continue to grow at around 15-20% a year for the next five years; given current expansion plans and ongoing cost falls, this is not an especially bold assumption and is in line with what the solar and wind sectors anticipate.  The third assumption is that the other non-fossil fuels – nuclear, hydro and biomass, continue to grow at their slow and steady growth rate of around 2% a year.  And the fourth assumption, again not exactly radical in the light of the Paris commitments, is that fossil fuels simply make up the residual supply of energy.

Share of incremental energy supply

 

Source:  BP, TSRP estimates

If we make these four assumptions, the conclusion is quite radical.  Already in 2015, non-fossil sources made up 51% (65 mtoe) of incremental supply of energy.  Within five years, in 2020, they will make up all incremental energy supply.  Global demand for fossil fuels will then start to fall, and this will have hugely disruptive impacts across the global energy system.  And since energy is the foundation technology of the modern world, the geopolitical impacts will also be significant, and the consequences will be felt in every sector, from defence stocks to construction companies.