Hey guys, previously we talked about how the oil and gas industry will be here to stay. Our reliance on these traditional fossil fuels for not only energy but also raw materials will not go away soon. These oils form the foundational components of many products that we use on a daily basis. They range from lubricants used for vehicles to the plastics used to carry our groceries. But we do recognize the renewable energy trends that’s catching on very rapidly in recent years.
Therefore, today we want to step back and take a look at this renewable energy trend. And see where we are heading in the very long term. So that you can make a more informed decision in terms of entering or exiting positions. Whether you are holding stocks in the oil and gas or the renewable energy sector, it will be beneficial.
But let’s first take a look at the background of the rising energy consumption across the world.
Renewable Energy Trends Background: Rise In Primary Energy Consumption
Source: Our World in Data / Primary Energy Consumption
Let’s be clear, our energy needs as a human population has been rising without a doubt. In fact, it has risen to more than 160,000 TWh in 2019. To clarify, this is regardless of whether the energy comes from renewable or non-renewable sources.
Source: Our World in Data / Population Growth By Country
The rising energy needs can be attributed to the growing population across the world as observed from the chart. We are in a time of higher standard and quality of living. There’s better health care that raises our life expectancy and reduces infant mortality rates.
Source: Our Finite World / World Energy Consumption Since 1820 in Charts – Per Capita Energy Consumption
Not only that, with industrialization and advancement in technologies, our energy consumption per person increases as well. We are using more energy-demanding devices such as our cars and machineries in the factories.
Many of our computers and daily appliances require a lot of energy as well. The trend will only go up in this increasingly modernised world.
Source: Our World in Data / Primary Energy Consumption
So far we have established the fact that our energy needs have been rising and will continue so in the years to come. Now we want to highlight the few key countries and regions that are consuming the highest amount of energy:
- United States
- United Kingdom
This will help us understand the impact of various clean energy trends later on. With this, we can appreciate if the various campaigns will make any difference to our energy consumption pattern moving forward.
Now, let’s move on to the 3 key renewable energy shifts that you need to know as investors.
1. Renewable Energy Trends: 2020 Record Expansion
Source: International Renewable Energy Agency / Renewable capacity highlights, 31 March 2021 – Renewable share of annual power capacity expansion
Based on the latest update by the International Renewable Energy Agency (IRENA), about 260 gigawatts (GW) of renewable energy capacity were added in 2020. This is almost 50% higher than the 2019 level, surpassing all previous growth records.
Yes, this number is commendable. But what’s astonishing is that this actually means more than 80% of all new electricity added in 2020 was renewable. Of which, solar and wind power contributed about 91% to this new renewable energy capacity.
As a result, the conventional fossil fuel additions dropped from 64GW to 60GW year-on-year as observed from the chart.
Just to be clear on the renewable energy trends, here we are only talking about the new energy capacity.
Distribution of Existing Energy Source Worldwide
Source: Statista / Distribution of primary energy supply worldwide in 2018, by source
Looking at the big picture, conventional fossil fuel still contributes a substantial amount to meet our energy requirements today. As you can observe, oil, coal and gas contributed more than three quarters of the energy supply across the world based on the 2018 data.
This is similar to how electric vehicles are taking up an increasing percentage of new car sales in recent years. Yet, we should understand that the existing vehicles on the road are still mainly fuel-driven ones.
The takeaway here is to recognize that the shift from fossil fuel to renewable energy is real, and it’s here. This is due to the movement from the governments all over the world. Authorities are implementing policies and providing incentives to move their respective countries towards greener nations.
Today, nations have explicit timelines to reach carbon neutral status. As such, private companies are driving innovations across all sectors linked to energy consumptions. Examples include energy generation, more efficient battery technologies, and the increasingly popular electric cars.
2. Renewable Energy Trends: Solar Getting Cheaper and More Efficient
Source: International Energy Agency / World Energy Outlook 2020
Next, as discussed earlier, solar and wind power contributed to the bulk of the new renewable energy capacity.
In fact, solar power will be the leading electricity supply in the coming years. According to the International Energy Agency (IEA), solar power will see continued expansion. This is due to the availability of resources as well as falling costs. Moreover, governmental policies all over the world are supporting the adoption of solar power. Thus, giving it a push on its expansion rate.
IEA also mentioned in the World Energy Outlook 2020 report that “for projects with low financing cost that tap high quality resources, solar PV is now the cheapest source of electricity in history.” In fact, it is even more cost-effective than conventional fossil fuels in large markets like the U.S, Europe, China and India.
This trend of the declining cost and greater efficiency of solar energy production will power the transition from traditional oil and gas to renewable energy sources.
3. Renewable Energy Trends: Campaigns and Initiatives Across Nations
Here we will take a look at the commitment and progress in terms of renewable energy adoption by the top 3 countries with the highest primary energy consumption.
As observed earlier, China has the highest primary energy consumption requirement in the world. To achieve substantial impact from any energy movement, definitely China has to be in the picture.
In fact, the authority has pledged to make China carbon neutral by 2060. The country is now on a trajectory to ramp up its solar and wind power installations plan in the next five years.
Source: Reuters / China doubles new renewable capacity in 2020; still builds thermal plants
The coronavirus pandemic has put a stop to many businesses and activities in 2020. However, China has more than doubled its construction of new solar and wind power plants compared to the previous year. This shows the government’s commitment to reduce the country’s dependence on fossil fuel and cut its carbon emissions.
2. United States
Source: The White House / Fact Sheet: President Biden Sets 2030 Greenhouse Gas Pollution Reduction Target Aimed at Creating Good-Paying Union Jobs and Securing U.S. Leadership on Clean Energy Technologies
Over in the United States, the country has the second highest energy consumption demand. The superpower has pledged to reach 100% carbon pollution-free electricity by 2035. And a net zero emissions economy by no later than 2050.
Source: Energy Storage News / In 2020 the US went beyond a gigawatt of advanced energy storage installations for first time ever
Positive renewable energy trends are that the country has built record amount of energy storage deployments in 2020 itself. This is an important element when it comes to having the capacity to store the renewable energy generated.
This can pertain to residential or non-residential solar panel related energy storage use. Also, we are seeing more off-site ones installed to be nearer to the solar and wind farms. Overall, there’s an accelerated pickup in the deployment of these energy storage assets.
Over on the India side, the country did not commit explicitly to a timeline for being carbon neutral. Because, India’s energy demand is forecasted to grow by more than any other nation over the next two decades.
At this point in time, the Indian government is not able to commit to a net zero emission.
The country will stick to its Paris pledge to reduce its carbon footprint by 33 – 35% from its 2005 level by 2030.
The plus side is that Prime Minister Narendra Modi has set a goal to generate 450GW of renewable energy by 2030. This is 5 times the current capacity and 2.5 times the Paris pledge.
Source: Our World in Data / Electricity Mix – Share of electricity production by source, World
Let’s sum up the renewable energy trends we have seen. There’s been substantial commitments and actual progress in setting up the relevant infrastructures, policies and incentives in place.
The aim is to move towards a more renewable energy-dependent world. This shows that in the very long term, we can expect a reduction in our requirement for conventional fossil fuels.
Balancing Between Short and Long Term
Yes, oil and gas will still be very relevant in our economy in the short to even long term. But the general progress we have made towards renewable energy, is something that investors need to take note of. This means that unlike the past, you can no longer own oil and gas stocks and just forget about it.
Fossil fuels are not going to go away tomorrow. Even in the long run, they will continue to serve as raw materials for many necessities we use today. But we are definitely progressing towards a greener society. So the requirement and economics of oil and gas will come down in the very long term.
So, look out for opportunities in the renewable energy market. Especially if you want to ride on this generational shift that is bound to come. As for those investing in the oil and gas industry, just keep this in mind.
The last thing you want is to be left behind by this wave of energy transition.
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