As I’ve shown elsewhere, the fossil fuel system is already in its death throes. Costs of production have rocketed for oil, gas and coal, and the market simply cannot afford to pay prices high enough for the big fossil fuel majors to sustain increasing profits.
Mark Lewis, former head of energy research at Deutsche Bank, points out that the industry is investing “at exponentially higher rates for increasingly small incremental yields of energy.”
This year the US Energy Information Administration found that as a consequence of this shift to expensive energy, the world’s leading oil and gas companies were sinking into a debt trap even before the latest oil price crash. Their net debt increased by $106 billion in the year up to March, while they sold off $73 billion of assets to cover surging production costs. “Alarm bells are ringing. Investors can see that this is unsustainable,” Lewis recently told the Telegraph. “They are starting to ask whether it wouldn’t be better to return cash to shareholders, and wind down the companies.”
As the fossil fuel empire crumbles, in contrast, the cost of renewable energy technologies (especially solar and wind) is dramatically falling even as efficiency gains are rapidly increasing. According to Silicon Valley entrepreneur and Stanford business studies lecturer Tony Seba, who forecasts the dominance of solar within just 15 years, the Energy Return On Energy Investment or EROEI of solar is far superior over the long-term than fossil fuels.
Seba told me that conventional EROIE calculations are potentially misleading because they ignore critical costs and externalities, especially in land and water usage, waste and pollution. Applying the concept of Energy Payback Time (EPBT) to photovoltaic (PV) solar panels—where EPBT is how long it takes to produce the same quantity of energy that was used to create and install the panels—Seba notes that recent thin film technologies will payback this energy in around just one year. After that point, effectively, energy is generated for free. If a thin film panel produces energy for 25 years, then its EROEI is 25. “This is far higher than the published results for most forms of energy today, including oil, gas, wind, and nuclear,” Seba said.
But Seba also pointed out that PV panels are likely to last many decades after 25 years. Panel performance degrades at around 0.5 percent per year, which means that even after 60 years, they would produce at 70 percent capacity. EROEI would therefore be on the order of 50 or 60. Given that by 2020, PV costs are expected to drop by another two thirds or so, this suggests that by then EROIE for solar would be even higher, potentially as much as 150. And as the efficiency and capacity of PV technology continues to improve (at a rate of 22% every 2-3 years), EROEI of solar PV technology is pitched to reach triple digits and exponentially improve, rather than degrade.
Fossil fuels simply cannot compete with this. As costs continue to drop, businesses and communities are already shifting rapidly to cheaper, decentralized solar, where post-EPBT energy is literally free. When combined with the fast emerging storage solutions diminishing prices, the old model of being dependent on expensive, centralized and dirty oil, gas and coal will be increasingly displaced by the relentless momentum of cheap, distributed clean energy.