When the Lehman crisis hit in 2008 solar power cost seven times more than today, and wind power three times more. Energy storage was exorbitant. Electric vehicles were futuristic prototypes. Twelve years later the advantage has flipped to the green camp.
Bloomberg New Energy Finance says wind and solar are already the cheapest source of new-build power for two-thirds of the world’s population. By the mid-2020s they will start to undercut the running costs of existing coal plants, and then progressively eat into existing natural gas plants as well.
Big Money is no longer aligned with Big Oil. The International Energy Agency says wind companies can raise equity and capital more cheaply than oil and gas explorers. The cost of wind equity has halved. Debt costs have dropped to 120 to 175 points over base rates.
Oil majors trade at steep a discount. The political landscape has also changed. There is no dialing back the Paris accord. Covid-19 has shown what nature can throw at complacent governments, which will no doubt be hurled from office by wrathful populations. Post mortems will be a sobering experience for the political class.
A $90 trillion alliance of global investors – the Principles for Responsible Investment (PRI) – is working from the premise that democracies will act to stop their leaders “sleep-walking” into an unlivable world.
This nexus of funds expects a regulatory sledgehammer to come down before 2025, leading to non-linear shifts in what is tolerated, including a prohibition of any car, truck, or tractor with an exhaust pipe. In other words, fossil fuels will be made illegal in stages.
Finance can sniff this out. By anticipating the change, it is forcing the change earlier. It is not the Greta effect that has caused this. The inflexion point was the warning by the Intergovernmental Panel on Climate Change in October 2018 that risk thresholds are lower than we feared and that the world has just a decade to head off cataclysmic tipping points.
Bernard Looney, BP’s new chief executive, can see the writing on the wall is wisely trying to turn his company into a green energy conglomerate before it ceases to be a company. He is biting the bullet early on stranded assets – just as HSBC bit the bullet early on its subprime exposure and therefore survived the 2008 banking crisis in good shape.