How BP – and Big Oil in general – is so wrong about solar costs

Oil major BP has delivered its annual energy market outlook, where it seeks to convince policy makers and investors world-wide of the impregnability of its fossil fuel business model. As usual, it makes heroic assumptions about the future of energy demand, fossil fuel use, and allowed carbon emissions.

Typically of the fossil fuel majors, BP can’t see the renewable energy revolution appearing before its eyes. This graph below highlights its myopia, it’s best guess of solar and renewable costs now and in 20 years time.

bp solar

“Solar PV is also likely to become competitive across an increasing number of market niches,” it writes in the report. “But even by 2035, grid-scale PV still requires a material carbon price to compete with efficient gas combined cycle generation.”

What a load of rubbish. Even leading oil industry consultant Wood McKenzie earlier this month pointed out that solar was about to effect an energy revolution even more dramatic than the fleeting one caused by shale oil and gas. It noted that in some states, solar PV was already cheaper than combined cycle natural gas plants, let alone in 20 years time.

Investment bank Lazard made the same point in this story and graph last year. Citigroup said last year “solar will become increasingly competitive with natural gas peaking plants and CCGTs as LCOE trends downward over the long-term and regulators and policy encourages fuel diversity.” And Minnesota proved that was already happening when it held a capacity auction last year, expecting it to be seized by gas plants, but solar came in with a lower offer.

The absurdity of BP’s outlook is further highlighted by Apple’s recent commitment to a major solar farm in California. Had gas been a cheaper option, you would be sure that Apple’s board and executives would have exercised their fiduciary duty to shareholders and signed up for gas instead of solar.

But they didn’t. And that’s because solar is cheaper than gas now and does not have fuel price volatility. In the US, contracts are being written for 6c/kWh, which still translates around 8c/kWh after tax credits. In the Middle east, a recent contract was signed for 5.84c/kWh for a 20 year contract, with no subsidies. Even gas fired generation in what is the world’s biggest exporter of natural gas is 50 per cent more expensive.

Which underlines points made by the likes of Carbon Tracker and Kepler Chevreux’s Mark Lewis in recent months. Big oil just doesn’t get it. Hopefully, the world’s biggest investors do.

Comments

5 responses to “How BP – and Big Oil in general – is so wrong about solar costs”

  1. JamesWimberley Avatar
    JamesWimberley

    Institutional investors thinking about stranded assets should ponder the wishful thinking evident in the rejection of clear market data on US solar costs. Lazard’s range for unsubsidised current utility solar LCOEs ($72-86 / mwh) doesn’t even overlap with BP’s. It’s supported by data from NREL as well as press reports on landmark contracts like Austin and Dubai.

  2. Peter Thomson Avatar
    Peter Thomson

    Ooh! Big Oil “get’s it” alright, they just don’t want to admit it. Neither do they want to admit that they have dramatically underestimated the cost of both coal and gas CCGT in 2035 if we continue BAU. The further their forecasts move from documented reality, the less likely it becomes that anyone will pay any attention to their forecasts any more.

    1. Raahul Kumar Avatar
      Raahul Kumar

      Fossil Fuel is the majority of energy generation today, and for the next decade, and the decade after that. This is the case even if solar and wind grow as much as forecasted, because they are growing fast off a low base.

      The world will also undergo severe climate change if fossil fuels are even a minor portion of the grid 20 years from now, we must achieve zero carbon.
      The world is not on track to achieve it, and BP’s big profits back them up on their beliefs that no one is pushing forward a credible zero carbon plan.

      However, if thorium pans out in the next 10 years, then yes fossil fuels won’t be a major part of the grid. Fusion won’t be a realistic factor before 2050.

      BP is assuming based on current trends that fossil fuels will remain the majority of energy generation, and given the 80% share of fossil fuels that make sense.

  3. Nick Thiwerspoon Avatar
    Nick Thiwerspoon

    Solar power as a percentage of total power generation has doubled every year for 30 years. The sustained–precipitous!–decline in the costs of PV panels means that that trend is unlikely to change soon, even without a carbon price. And frankly, apart from a few tinfoil-hat-wearing loons, and the oil and coal sector, no one any longer believes that global warming isn’t (a) real (and scary) and (b) caused by mankind. So cap-and-trade schemes, carbon taxes, and RETs are inevitable. Frankly, if the US, China, Europe and India agree on de-carbonisation, does anyone for one minute think that small countries like Oz will be permitted to go their own way?

    Solar is currently 1% of global power. If it continues to double every 2 years, it will reach 16% within 10 years. Wind at 2.5% of world elec supply, is doubling every 3 years. In 12 years that will take it to 16% of world elec generation. Electricity generation will however have to rise sharply (30%??) to accommodate the boom in EVs, currently 0.5% of world car production but likely to explode as the cost of batteries plunge (Tesla gigafactory >> 50%-70% cut in li-ion battery prices.) My guesstimates are that renewables will be producing 95% of a much larger electricity output in 2030, and coal, gas and oil reserves will be more or less worthless. Of course, that doesn’t mean we won’t have occasional rallies as the death spiral intensifies!

    Humans are terribly bad at estimating the effects of exponential trends/tipping points. Ask Kodak. Or the steamship companies. Or fixed-line telephone companies.

    1. Peter Avatar
      Peter

      I was going to write the same – about Kodak and the inability of humans to visualise the impact of exponential growth.
      Let’s hope that BP continue to underestimate renewables as it will help accelerate the decline of fossil fuel. My guess is they will until it’s too late for such a behemoth. It may just be too painful for them to think about – their decline that is.

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