Myth 1. Renewable energy sources are too small to impact the giant fossil fuel sector.
This is the first of a series on the myths of the energy transition, written by our New Energy Strategist, Kingsmill Bond. We contrast myth with reality, and cast light on the merchants of doubt.
Markets are moved by growth not size. Investors react as growth slows, not when sales have already halved. Markets therefore look for peaks and the end of incumbent growth.
The rule of 3%. Any fast-growing challenger will rapidly take all the growth in a slow growing market. As a rule of thumb, incumbent sales will peak when the challenger gets to around 3% market share.
Other energy transitions were similar. US horse numbers peaked when cars were 3% of their size. UK steam demand peaked when electricity was 3% of power supply. UK gas lighting demand peaked when electricity was 2% of lighting.
The impact is now. Renewable energy is already damaging the more exposed parts of the fossil fuel system. The European electricity sector has written off $150bn of stranded assets since 2008, Peabody filed for bankruptcy in 2016 when coal demand was 4% below its peak, and GE has lost half its capitalisation in the last year.
It is normal for markets to react at the peak. The share price of Nokia peaked just after the launch of the iPhone, and Kodak’s share price peaked when digital cameras had a market share of just 3%.
Renewables are fast-growing disruptive technologies that have reached critical mass and are transforming the global energy system. Investors in incumbent energy companies are at risk.
Kingsmill Bond is New Energy Strategist for Carbon Tracker, and focuses on taking our research out to investors.