• Saturday, July 20, 2024
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BusinessDay

The future of renewable energy: What’s next for oil?

Economy loses over N100bn to soft oil prices, drop in export volume

In 2040, about 14 million Nigerians mostly in rural areas will live without electricity while those in the urban areas will continue to rely on power generated from fossil fuel. Elsewhere around the world, governments are building more solar plants, wind farms and hydro-electric power plants to generate power as global warming and climate change continue to take centre stage.

If this prediction comes to pass, the combination of population growth in Sub-saharan Africa and progress in other parts of the world means that Sub-saharan Africa becomes the dominant region of those without electricity access in the world, representing 90% of all the people in the world that lack access to electricity.

In 2018, more than a quarter of the world’s energy was generated from renewable sources, thanks to cost coming down and more green policies taking off. The most common sources of renewable energy today include solar, wind, geothermal, biomass and hydropower.

In the race towards a future of renewable energy, countries are outwitting one another mainly because not all countries have the same potential to harness clean energy or the right environment for certain energy infrastructure.

The countries currently leading in the rankings of renewable energy in hierarchical order include: China, the United States of America, Brazil, India and Germany as they have the biggest renewable power capacity worldwide due to their size.

However, if hydropower is removed from the mix, Germany moves up to number three (3) and Japan takes the number five (5) spot. It is no coincidence that these 5 countries also make the list of the world’s biggest energy consumers; meaning that even if they were producing renewable energy at capacity, it still makes up a small proportion of their overall energy mix.

More than 75% of Norway, New Zealand, Brazil and Columbia’s energy production comes from renewables while Canada, Sweden and Portugal also make a good showing. But for big oil producing Nations like SaudiArabia, UAE, Kuwait, Algeria and Nigeria, renewables are unsurprisingly near non-existent.

Read Also: Naira signals further depreciation amid rising oil price

But again, not all countries have equal geographies and policies; renewable energy should be thought of as something be-spoke, with each country harnessing the environment according to its unique surroundings. Norway has 1,660 hydropower plants and more than 1,000 storage reservoirs. It is possible for Norway to depend on hydropower because of the country’s long coast-lines, steep valleys and high levels of running water. In neighbouring Sweden where forests make up 63% of its land mass, bio-energy is increasingly being used for heating as well as for electricity production. Also, about 11% of its electricity is also derived from 3,600 wind turbines. Same applies in Brazil, which has rivers and huge swaths of the

Amazon rain forest within its borders. Clean energy including hydropower accounted for 42% of Brazil’s electricity production in 2017. The same was applicable for Venezuela and Colombia, countries known for hydroelectricity.

One of the famous cautionary tales about over reliance on one form of energy comes from Venezuela, which depends heavily on the Guri dam for about 60% of the country’s electrical needs. In 2010 and 2016, droughts caused the dams water to fall so low, the government had to declare emergencies. These events should serve as a caution for Nigeria’s over-dependence on oil as a source of energy and revenue.

Thomas Edison in 1931 stated that “I would put my money on the sun and solar energy, what a source of power! I hope we don’t have to wait until oil and coal run out before we tackle that”. By 2040, 37% of power generation is expected to come from renewables compared to the 23% today, which would probably make Thomas Edison happy.

Renewable energy stocks were on a tear in 2020, in a year that saw its fair share of winners and losers in the stock market.

The solar ETF (TAN) which tracks the largest companies involved with solar power surged more than +230% last year compared to the S&P 500’s modest gain of 15%. These statistics show significant promise in the nearest future thus driving oil driven economies into a frenzy. Oil as we all know is a resource that has started wars and caused global markets turmoil. Oil accommodates more than half of the world’s transportation like cars, planes and trucks but with the emergence of electric vehicles and renewable energy the question thus becomes…what’s next for oil?

The answer to that question depends on who you ask. An analysis from the International Energy Agency (IEA) lays out the debate. One scenario has oil peaking in the mid 2020’s while the other shows oil demand growing until 2040. The IEA says it’s too soon to write oil’s obituary, oil and gas still received 2/5th of global energy supply investment in 2019. That was less than electricity got since 2016, but still much higher than investment in energy efficiency and renewables in transportation and heating.

Experts say that it would be a long time before the infrastructure would be in place for electric cars to overtake the streets and even then, there would still be demand for oil; as it would still be a dominant energy source for emerging markets like Nigeria and for industries like trucking, aviation, petrochemicals and shipping.

The major reason why these industries haven’t backed-off oil yet is because of the historic low price of oil. In 2014, the price for a barrel of crude oil traded above $100 however, today it’s below $60 which could be accrued to excess supply over demand. In 2014, economic growth slowed in countries like China and Brazil which made oil demand go down at the same time global oil supply was going up fast.

The US experienced an oil boom (thanks to shell drilling), meanwhile OPEC which is a cartel of oil producing countries decided not to cut their own supply and despite geo-political tensions in countries like Iraq and Russia, oil production did not go down in those regions either. It was good for consumers who pay less at the pump, but low prices hit oil producers and exporters hard.

Big oil companies like Shell and BP have been responding to low oil prices and increased regulations by trying to diversify their businesses.

Some of these investments are going towards renewable energy but most of it is going toward gas. Exxon predicts that demand for natural gas will grow more than any other energy source and by 2040 it would make up a quarter of the global energy mix.

Some analysts say that it would take a long time for the world to change to alternative power sources especially when oil prices are so low, but whether the oil era ends or not, a new era of alternative energy has already begun and world economies should anticipate embracing it in the nearest future (Nigeria inclusive).