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Grantham: Wind, solar to replace fossil fuels within decades

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Legendary hedge fund investor Jeremy Grantham says there is no doubt that solar and wind energy will “completely replace” coal and gas across the globe, it is just a matter of when.

The founder of $100 billion funds manager GMO Capital is known as a contrarian. But he suggests that the pace of change in the fuel supply will surprise everyone, and have huge implications for fossil fuel investments.

“I have become increasingly impressed with the potential for a revolution in energy, which will make it extremely unlikely that a lack of energy will be the issue that brings us to our knees,” Grantham writes in his latest quarterly newsletter.

“Even in the expected event that there are no important breakthroughs in the cost of nuclear power, the potential for alternative energy sources, mainly solar and wind power, to completely replace coal and gas for utility generation globally is, I think, certain.

“The question is only whether it takes 30 years or 70 years. That we will replace oil for land transportation with electricity or fuel cells derived indirectly from electricity is also certain, and there, perhaps, the timing question is whether this will take 20 or 40 years.”

Grantham’s predictions go against the conventional wisdowm of the fossil fuel industry, but they the thoughts of many people, including Stanford researcher Tony Seba, who said last year this could occur within a few decades.

And Grantham says it could happen quicker than even he believes, and will have major implications for new investments in the fossil fuel industry – a topic very much in mind for project developers and bankers in Australia.

“I have felt for some time that new investments today in coal and tar sands are highly likely to become stranded assets, and everything I have seen, in the last year particularly, increases my confidence,” Grantham writes.

“China especially is escalating rapidly in its drive to limit future pollution from coal and gasoline and diesel powered vehicles. Increased smog last year in major cities led to an unprecedented level of general complaint.

“China simply can’t afford to have Chinese and foreign business leaders leaving important industrial areas in order to protect the health of themselves and their families. Nor are they likely to be comfortable with a high level of sustained complaint from the general public. They have responded in what I consider to be Chinese style, with a growing list of new targets for reducing pollution. A typical example recently was an increase of 60% in their target for total installed solar by the end of 2015! Hardly a month goes by without a new step being announced.”

He also questioned whether th $650 billion spent by the fossil fuel industry searching for new oil reserves was a smart idea, given his recent experience of a colleague’s Tesla. Grantham, the former onwer of a 12-year-old Volvo, described his journey from New York to Boston as his best ever car experience, and suggested that the slump in battery costs would mean the $75,000 vehicle like Teslas would soon be available at $40,000.

“One can easily see that in 10 years there could be a new world order in cars. (And if that weren’t enough, there is a wholly different attack on the traditional gasoline engine from an entirely new technology, the hydrogen fuel cell, to be introduced by Toyota this year.)

In short, with slower global economic growth, more fuel-efficient gasoline and diesel vehicles, more hybrids, cheaper electric cars, more natural gas vehicles, and possibly new technologies using fuel cells and, conceivably, methanol, it is certain that oil demand from developed countries will decline, probably faster than expected.

“Some emerging countries, notably China, are likely to take more dramatic and faster steps to reduce demand than we have ever thought about. Already they have 200 million electric vehicles – mostly motorbikes – almost as many as the rest of the world squared.

“Total global oil demand at current prices or higher is likely to peak in 10 years or so. At much lower prices we would fairly quickly lose most of our high-cost production: deep offshore, fracking, and tar sands.

“Times may be changing faster than we think. My guess is that oil prices will be higher than now in 10 years, but after that, who knows?

“The idea of “peak oil demand” as opposed to peak oil supply has gone, in my opinion, from being a joke to an idea worth beginning to think about in a single year. Some changes seem to be always around the corner and then at long last they move faster than you expected and you are caught flat-footed.”

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  • Hayden Searle

    A minor correction Giles, if I may. In your earlier piece on Tony Seba of Stanford, I believe you had written that his forecast was that fossils will be all but gone by 2030, 16 years from now. I still have the article on file.

  • Don Ross

    Sooner the better for all of us and our descendants futures.

  • Jason Deveau

    What he says is impossible. He is just looking out for his investments. Forget this wind and solar fantasy BS. We need way more Nuclear right now!!!

  • JRT256

    This is simply a Green fairy tale spread by people that do not understand Electrical Engineering. Yes, we can obtain 25% of our electricity from wind and solar. However, the falacy is that if we quadruple the amount of wind and solar that we have installed we will not be able to obtain 100% of our electricity from wind and solar.

    This would work with nuclear but not with wind and solar. The reason is the variable and intermittent nature of wind and solar. They do not produce electricity equal to the nameplate rating — they have a Capacity Factor. With stationary solar PV collectors, it is 25% or less. With wind it is typically 30% to 40$ depending on the location and season.

    So what would happen is that when we installed wind and solar to the point that the total nameplate capacity was equal to our electricity demand, it would be able to meet out peak electricity demand part of the time, however due to the Capacity Factor, they would not provide all of the electricity that we needed all of the time. Installing more wind and solar would not solve the problem because it would provide too much electricity part of the time and still not provide enough electricity all of the time.

    So, fossil fuel or hydroelectric backup is needed for wind and solar. Since there is a limited amount of hydroelectric available and modification of existing dams is very expensive this means that what is used is mostly natural gas fueled turbines.

    So, the answer to the elimination of coal fired power plants is nuclear power. Existing nuclear power can do this, hower advanced (Generation IV) nuclear power will be less expensive and even safer. Next generation nuclear power can also replace coal and fossil fuels in other uses. It, not wind and solar is the future of power.

  • Mark Pawelek

    This is fiction. The only reason solar and wind energy exist is due to fossil fuel. Solar and wind are intermittent and non-dispatchable. Fossil fuel is dispatchable. Intermittent, non-dispatchable power sources, such as wind and solar, can’t work without dispatchable energy support. That means fossil fuel support. In theory, an energy storage medium can act as a dispatchable source for a limited time period. In practice, massive amounts of storage energy will be needed for a fully wind/solar grid. The cost will be cripple any economy trying this. Nuclear power is safer, far cheaper than wind/solar + energy storage, it can be rapidly scaled and there’s enough nuclear fuel for millions of years.