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BHP swallows Lomborg line and sells itself short on wind and solar

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Australia’s biggest company and the world’s bigger miner, BHP Billiton, has issued a downbeat forecast for wind and solar in a blog post that predicts demand for fossil fuels – among its core businesses – will continue to flourish for decades to come.

The BHP blog post is tantalisingly titled – “How much spark is there in the solar and wind revolution” – and begins with the comment that the world is seeing “the dawn of a wind and solar power revolution”.

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But a “dawn” is about all it sees.

The post is apparently based on the ground-breaking Paris climate agreement, which aims to limit average global warming to well below 2°C and possibly at 1.5°C.

Yet its forecasts for wind and solar are based on the world completely ignoring that deal and pushing forward with the current suite of enacted and proposed policies, rather than the additional initiatives that the agreement will require world governments to bring to the table.

Borrowing a line often spoken by climate contrarian Bjorn Lomborg – and frequently cited by the Coalition government – BHP says that wind accounts for just 3.5 per cent of total electricity and solar 1 per cent and will not play a huge role into the future.

It says that the share of wind and solar will grow, even triple, but that fossil fuels will continue to provide 80 per cent of the world’s energy needs in 25 years time.

This forecast is based on the International Energy Agency’s “new policies” scenario, which forms the bedrock of similarly pessimistic predictions by Lomborg, and also forms the basis of the Australian Coalition government’s latest energy white paper.BjornLomborg

It effectively ignores climate change because the new policies scenario is expected to produce an outcome of between 3°C and 4°C of global warming. Is this then the basis of BHP Billiton long-term investment decisions?

Billions of dollars are at stake, and investors would not want to see a repeat of its Johnny-come-lately dive into the US shale gas industry which cost it billions of dollars in write-offs.

BHP, however, hints that the trillions of dollars of sunk investment in fossil fuel industries will make it difficult for renewable energy to get much more of a foothold.

“The trillions of dollars already ‘sunk’ in existing conventional, long-life power plants must also be considered,” it writes. “This will impact the speed of renewables uptake, but not the direction of change.”

It then adds that there is plenty of headroom for renewables to grow before the “constraints of the current renewables technology begin to bite.”

It defends its predictions by citing the cost of solar in the world’s biggest energy market, China, where it predicts that solar will not compete with coal for at least another decade.

These are perilous predictions. The established world order has made a terrible hash of predicting the uptake of wind and solar, or realising its rapid cost reduction curves.

BHP recognises that solar is already cheaper than fossil fuels countries such as Morocco and Chile – but suggests it will take a while for that to happen in China.

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But solar has an extraordinary capacity to surprise. In March, the head of Trina Solar suggested that the cost of solar could fall to 0.50 yuan by 2020.

By September, it was already there, with a bid for 0.52 yuan ($US77/MWh) in a tender in Mongolia, and with predictions of further price falls in solar modules because of ongoing efficiency gains and a surplus of capacity.

Indeed, in a research note issued on Tuesday, Deutsche Bank said China was likely to cut its feed in tariff for solar to around 0.55 yuan to 0.75 yuan, depending on the region and its solar resources. At this level, Deutsche says, solar will be at grid parity.

“Given the sharp decline in system costs (they have fallen by 30 per cent in the last year) this announcement … is not surprising,” Deutsche says. And even with these lower tariffs, developers in some provinces will be able to generate internal rates of return of about 10 per cent.

Meanwhile, prices in key markets such as the UAE hit a low of $24/MWh.

BHP may be basing its China forecasts on the regulated price of coal and solar. But its interests are probably more entwined with the comparison between solar PV and imported coal. And solar already wins out handsomely on that score.

And while BHP is holding on to the idea that fossil fuels will account for four-fifths of energy supply in decades hence, others have completely different views.

Liu Zhenha, the head of China’s State Grid, the world’s biggest utility, says that by 2050 wind and solar could account for 80 per cent of the world’s total energy needs. He has an ambitious plan of a global network to deliver those resources.

Even the IEA, in the scenarios where they consider what might happen should the world act on the Paris climate treaty they have just ratified and brought into effect, suggests that wind and solar will overtake coal and gas as the single biggest source of electricity by 2040.

But it should be noted the IEA’s “ambitious” forecast is based on incredibly conservative forecasts for the cost of solar.

The document that suggests solar will be the biggest single source of energy by 2040 predicts the costs of utility-scale PV to fall from around $US160/MWh now, to $US42/MWH in 2050.

This in incredibly conservative, because in 2016, those 2050 forecasts have been well and truly beaten in Abu Dhabi ($US24/MWh), Chile ($US29/MWh), the US ($US30-40/MWh) and India is already down to $US65/MWh.

Let’s hope that BHP, in its subsequent blogs that will look at those climate policy options, brings a dose of reality to its forecasts. But like other fossil fuel giants – such as BP, Shell and Exxon – it has an interest in playing down those forecasts, if only to influence the vast capital flows that keep their business turning.  

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  • Tim Buckley

    I wonder if BHP’s analysis includes any impact from China’s intention to bring in a national ETS in 2017? Their own chart would suggest not. BHP in this “analysis” is assuming China will never internalise the various costs of pollution (air, water, particulates, carbon). This is flawed analysis of the sort that caused BHP shareholders A$9.5bn of write downs two months ago on US fossil fuel “investments”.

    BHP’s own chart also ignores the fact that coal fired power plants have an inflationary cost structure, so the assumption that solar and wind are marginally deflationary while coal fired power is flat in nominal terms is wrong on both accounts. The cost of a new coal fired power plant in India has risen more than 30% in the last five years. Meanwhile Energy Minister Goyal highlights this week solar costs in India are down 40% in just 18 months. BHP is still underestimating this double edged rate of technology change, at shareholders cost.

    http://www.livemint.com/Politics/jYAQRMAxg1DZ7GJfQC3fbM/After-solar-energy-focus-is-now-on-hydro-wind-says-Piyush.html

    • Ken Dyer

      Tim, you overlook the obvious. BHP’s analysis is for the benefit of its poor deluded shareholders, and those who might think that BHP and its reliance on fossil fuel will keep the dividends rolling.

    • solarguy

      BHP and others know what the truth is, their trying to buy time.

    • Alastair Leith

      Actionable before the ASX, Tim?

  • john

    i find it difficult to reconcile the cost points put out by BHP Billiton.
    With zero cost of energy for energy using alternate energy sauces how on earth do they believe it is going to be more costly to use a zero energy input than an increasing cost of energy from their sauces?

    • nakedChimp

      They don’t believe, they try to convince their shareholders and investors – that’s a difference 😉

  • Rob G

    Haven’t the last 2 financial years seen record losses for BHP? … seems they are slow learners.

    • Stewart Rogers

      Hardly, they made writedowns and the future is in good stead.

    • Lindsay

      BHP have not made a loss in my lifetime and I,m sixty six. Maybe you should do some research before you make some stupid statement.

      • Not made a loss in your lifetime? Well, if you take the end of their financial year to June 30, 2016, that would make you about 66 days old, rather than years. Here’s the statutory loss announced in August for that year, a net loss of more than $US6 billion. https://uploads.disquscdn.com/images/0bf5399bb21368058dc7f629f208d95bc72908c561fae02f4b1f67a906370db9.png

        • Lindsay

          Its an accounting loss for taxation purposes and hardly reflects the profitability of their business.
          Maybe you should stick to reporting environmental issues.

          • You very funny. Yes, it’s an accounting loss because accounting law requires that if you pay for something, say US shale assets, and then find that they are now worth $5 billion less, as the US shale assets are, then you are required to write it down. An accounting loss yes, but a loss. That’s $5 billion that the shareholders won’t see again, and maybe why the head of petroleum responsible for the purchase is no longer there.

      • solarguy

        I seem to remember they have had a loss.

  • Robin_Harrison

    Isn’t it beautiful watching ‘business as usual’ becoming almost incoherent trying to fend off the imminent end of the fossil fuel age.

    • solarguy

      Yes it is, but a note of concern, there will be plenty of weak heads out there who will believe BHP’s bullshit and will argue that solar and wind can’t do the job because a huge company says so.

      • Robin_Harrison

        You’re right, you can always fool some of the people all of the time, but the fossil fuel age won’t go on for ever just because a huge company says it will. The economics are starting to kick in.

      • Alastair Leith

        come in spinner

        • solarguy

          Alastair, what do you mean, come in spinner?

          • Alastair Leith

            It’s a fishing term used to suggest gullibility in the general population. Oft used by my corp world auntie and uncle. There’s always those who’ll take the bait no matter how much money yrjey have to throw away on stranded assets and destroying what’s left of a safe climate (remembering the climate is always ten to a hundreds years off than what own presenting to us at the moment).

  • suthnsun

    They are really talking AAGW ( Abrupt Anthropogenic Global Warming) if we are still getting 80% energy from ff in 25 years. Feedbacks are already strongly evident, they are courting complete catastrophe, massive extinction event (inc. HS) , unadaptable rate of change, sea level instability, atmospheric chaos and storms magnified manyfold. There is still a very slim window of opportunity to prevent this, BHP deserves condemnation ( along with many other parties).

    If you look at this paper and download the supplementary data and inspect figure S5, this is the only pathway I consider both feasible and not terminally catastrophic. Notice that there are only a few years left requiring transitioning at a breakneck pace.
    http://iopscience.iop.org/article/10.1088/1748-9326/11/9/094009/meta;jsessionid=7C7607A33E3D5A5B47CBFA28AB7A725D.c5.iopscience.cld.iop.org

  • Ian

    Like any sketchy company with two sets of books. 1 for the tax man and 2 for its personal accounts – BHP would have two scenarios the one as discussed in the article above for its shareholders and general public and a second more occult scenario, closely guarded, and kept in a secure vault in an undisclosed place showing a more realistic and worrying picture. One involving a Peabody-like company apocalypse!

  • Geoff

    Don’t believe in the IEA anymore. Find their predictions biased and skewed, most probably because their in bed with the carbon industry.

    • Alastair Leith

      and nukes, have been foreva

  • lin

    I wonder if BHP has plans to make money from geo-engineering and climate change mitigation in future (create the problem, sell the solution!!). The banks certainly seem able to guide government policy so they can create a disaster then rip off taxpayers to clean up the mess, so I am sure the miners and petrochemical companies would not be unfamiliar with the process.
    It should be illegal, but since our political classes benefit so much from it, it’s difficult to see any meaningful change happening soon. This corporate psychopathic arse-hattery and the bribery and corruption of our political “representatives” will be the death of us all.

  • Brunel

    The solar panels do not have to be in China. They can be in Tibet and connected to the highly populated areas via UHVDC.

  • DogzOwn

    “suggests solar will be the biggest single source of energy by 2040 predicts the costs of utility-scale PV to fall from around $US160/MWh now, to $US42/MWH in 2050.” can anybody explain why $/MWh show such big variance? Are lower prices ex turbine tower/PV panel while higher prices are wholesale completely integrated with grid? Or are higher prices for short, 5 year or so, life expectancy, with no PPA, while lower prices are longer 20year with PPA. Which end of US$24 to US$160 is fairy land?

  • Richard

    This article is fraudulent. It does not take into account the cost of storage. To compare apples with apples you have to add the cost of storage to solar when comparing it to 24/7 coal power. The cost of a solar panel could fall to zero and still not be competitive with coal because of the high cost of storage replacement and maintenance of storage facilities/batteries.
    A better argument would be to discuss the cost of emitting co2. Without a tax on emissions of some sort or major subsidies, renewables will never compete on a true cost basis with coal for generating 24/7 power.
    Lets face it, it is common sense. There will never be anything cheaper than shoveling coal into a big fire to boil water to create electricity in Australia where coal is plentiful and cheap.
    And the reality is the cost of power will have to rise and we will have to get used to that, if we are going to do anything meaningful about climate change. I don’t see a problem with that but I do have a problem with articles that don’t tell the full story and spread misinformation.

    • Alastair Leith

      Shareholder action involving the ASX or ASIC possibly ahead?

  • Anyone who invests in a corporation with an analysis as shonky as this needs their head examined.

  • Alastair Leith

    Giles, the “possibly +1.5º C limit” is pie in the sky. With climate lag and removal of coal power station short lived cooling particulates +0.3º C and +0.2º C respectively must be added to todays +1.0º C average global air temperature, so 1.5º C has left the station even if we stopped all man-made GHG emissions tonight at 6PM. And we know that ain’t happening tonight or tomorrow night.

    The only way to get to a +1.5º C limit this century would be ubiquitous, near zero cost energy (think paint on PV) driving CO2 drawdown tech that at present is very energy intensive like mineralisation of serpentine/olivine etc. reforestation alone doesn’t have that kind of drawdown capacity. Bio-mass to energy is not a viable draw-down technology at the scale required in many peoples view who’ve considered it, include BZE Land Use Report authors, despite the IPCC 2ºC pathway theoretical reliance on it.