Renewables set for rapid long-term growth as role of hydrocarbons declines: BP

Energy security fears triggered by the Russia-Ukraine war are likely to hasten the energy transition, resulting in a mounting share of renewables in the primary energy mix by 2050 and a decline in the importance of fossil fuels, BP said in its Energy Outlook 2023 report published Jan. 30.

Noting that Russia-Ukraine war will have "long-lasting effects" on the global energy system, BP said: "The heightened focus on energy security increases demand for domestically produced renewables and other non-fossil fuels, helping to accelerate the energy transition."

In an introduction to the report, BP Chief Economist Spencer Dale said recent events had showed how relatively small disruptions to energy supplies can lead to severe economic and social costs, and urged the need for an "orderly" transition away from hydrocarbons.

In its long-term outlook, BP said a rapid expansion in renewables encouraged by increased electrification and the growth of low-carbon hydrogen will coincide with a declining role of hydrocarbons.

The share of renewables in the global primary energy mix is likely to increase to between 35%-65% by 2050 from around 10% in 2019, while the share of fossils fuels will slump to 20%-50% in 2050 from around 80% in 2019, according to the report.

This will be driven by the improved cost competitiveness of renewables along with more low-carbon energy policies globally. The pace at which renewable energy will penetrate the global energy system is quicker than any previous fuel in history, the report added.

New momentum

In the report, BP explored three different scenarios: "Net Zero," "Accelerated" and "New Momentum," all of which consider key developments such as the Russia-Ukraine war and the passing of the US Inflation Reduction Act (IRA).

Under BP's base-case scenario, New Momentum, CO2e emissions will peak in 2025 and by 2050 they will be around 30% below 2019 levels.

"The lower level of CO2 emissions is largely driven by a weaker GDP profile caused in the near term by the impact of the war on commodity prices and further out by the reduction in the pace of growth of global integration and trade," it said.

Oil demand will also decline under all three scenarios, driven by falling use in road transport due to the efficiency and electrification of the vehicle fleet.

But BP warned greater government for energy transition is needed due to the scale of the decarbonization challenge.

Under the New Momentum scenario, global oil demand would remain close to 100 million b/d through 2030 then shrinks gradually to around 75 million b/d by 2050.

Low-carbon shift

In renewables, wind and solar power is set to expand rapidly, driven by increasing cost-competitiveness and policies supporting a shift to low carbon electricity and green hydrogen.

Wind and solar installed capacity will jump around 15-fold over the outlooks in BP's Accelerated and Net Zero scenarios and nine-fold in the New Momentum setting.

Growth in capacity out to 2035 is dominated by China and the developed world.

Analysts at S&P Global Commodity Insights also hold a bullish view for wind and solar generation.

"Solar generation set to more than double in major markets such as US, China and Western Europe," they said in a recent report.

Solar generation is likely to quadruple in the US by 2030 as the IRA will significantly reduce levelized costs for new wind and solar projects via tax credits, S&P Global analysts added.

Central to the importance of renewable energy will be continued electrification of the energy system.

Electricity demand will jump by around 75% by 2050 in all three scenarios, with the transport sector seeing the largest increase.

Growing prosperity in emerging economies and increased electrification will push global electricity demand.

The share of electricity in total final energy consumption increases from around a fifth in 2019 to between a third and a half by 2050

Low-carbon hydrogen will also play a significant role in the decarbonization of the energy system, "especially in hard-to-abate processes and activities in industry and transport," BP said.

But hydrogen's growth will only accelerate in 2030s and 2040s supported by falling costs of production and tightening CO2 emissions policies.