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Page added on February 13, 2014

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Grantham: Wind, solar to replace fossil fuels within decades

Alternative Energy

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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9 Comments on "Grantham: Wind, solar to replace fossil fuels within decades"

  1. Davy, Hermann, MO on Thu, 13th Feb 2014 12:48 pm 

    “YAWN” WE HAVE HEARD THE TECHNO OPTIMISM BEFORE! There is no proof of a major developed society being able to manage a national grid system with any more than 20% renewable penetration. Distributed local small scale grids have a place but can’t even begin to take up the slack of a national grid in a BAU setting. Renewables are a highly complex and energy intensive manufacture and maintenance technology that MUST have fossil fuel support. All this said is before we consider all that is talked about here with the economy and PO. Complex and energy intensive faced with contracting economy and PO. It is a dead end line of thinking that is dangerous. It makes people think there are options that are not there.

  2. Makati1 on Thu, 13th Feb 2014 3:38 pm 

    Hahahahahaha…. nice fantasy article.

  3. Kenz300 on Thu, 13th Feb 2014 4:48 pm 

    Quote — “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 transition to safer, cleaner and cheaper alternative energy sources continues to grow around the world.

    Wind, solar, wave energy, geothermal and second generation biofuels made from algae, cellulose and waste are the future.

    The price of oil, coal and nuclear keeps rising and causing environmental damage.

    The price of wind and solar keeps dropping and it is safe and clean.

  4. J-Gav on Thu, 13th Feb 2014 4:52 pm 

    I predict that in the year 2300 wind power from bacterial farts will be powering the planet at roughly 87.5 times our present energy capabilities.

  5. PapaSmurf on Thu, 13th Feb 2014 6:34 pm 

    Two issues I have with his “legendary” comments:

    1) Wind and Solar don’t provide baseload energy. Coal and Natural Gas do. So it is not reasonable to expect a 100% substitution between those sources. Most realistic studies predict that due to intermittency issues Solar/Wind combo will have trouble going beyond 50% of the grid total. The rest will have to be covered by Hydro, Nuclear, Geothermal, etc.

    2) Anyone who predicts Hydrogen fuel cells are the future cannot do math. Electric vehicles beat hydrogen fuel cells in every single category.

  6. Bandits on Thu, 13th Feb 2014 8:54 pm 

    It’s a recurring patern, these technological optimists are bound by one thing…….their investment in BAU, whether it be shares in solar panels or tar sands.
    Always keep in mind the old saying when you see these pieces. “It is impossible to get someone to understand, when their livelihood depends on them not understanding”.

  7. MrEnergyCzar on Thu, 13th Feb 2014 10:13 pm 

    Only Norway’s grid is 99.9% renewable….

    MrEnergyCzar

  8. meld on Thu, 13th Feb 2014 10:46 pm 

    La la land.

    If I was director of a fossil fuel company and I honestly believed that solar and wind are even remotely in the same league as oil/gas then I’d be diversifying my ass off into them. These are the richest companies in the world, why wouldn’t they start creating a huge monopoly in the renewable sector too? well because it’s all shit any they know it is.

    Renewable energy business are in many ways actually worse than the oil industry as they are sucking all the money out of the governments to put in place energy systems that aren’t going to cut it (unless all you need to live are lights and a TV)

  9. Davy, Hermann, MO on Fri, 14th Feb 2014 11:58 am 

    Meld the problem with renewables is the same with fossil fuel industry and that is all the false promises. They also think they can become self-replicating like robots building robots. When I see a critical mass of ability for a renewable industry to power a society and that same technology powers the manufacture of that technology that powers then I will lay down before it and kiss its feet. Until then we better get our heads out of our asses and utilize every possible source with a comparative local advantage to power us down the energy gradient to a softer landing. I am hoping we land somewhere between 19th century and early 20th century. It is possible we will go down to the stone age.

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