This is pretty much a paraphrase of a short news comment article, and an academic article by Brett Christophers, professor in the department of social and economic geography at Uppsala University in Sweden, which fits in with the last couple of posts.
It is depressing, but I think real.
Christophers suggests that it is not the cost of building energy supplies which is the issue for energy transformation but the profit margins. To me, this seems eminently plausible. Business is in business for profit, cornering the market, or social power, not for anything else.
If this is the case then the current cheapness of renewable energy is an almost irrelevant factor for commercial energy transformation.
Apparently BP, Shell and Total have all announced they are getting into renewables. They have also continued to invest in new fossil fuel fields, and I gather are not planning on cutting fossil fuels if they can avoid it. In other words, they are not in the business of reducing emissions.
Crucially, all three companies agree that hydrocarbon production in areas such as oil remains significantly more profitable than renewable energy generation. Internal rates of return (IRRs) – the standard commercial measure of an investment’s profitability –are around 15% to 20% on hydrocarbons, or higher. Typical IRRs on renewables today are around 5% to 6%, although the majors think they can do better than existing renewables companies and lift returns to about 10%.
A big part of the reason for these differences, as the energy economist Nick Butler has noted, is varying degrees of competition. The barriers to entry to the renewables business are much lower than in oil and gas [Because they are so much cheaper!], thus increasing competition and depressing profitability.
As a result, all three European majors continue to invest vastly more resources into oil and gas development than renewables development. BP, for example, will start up seven major new hydrocarbon production projects in 2022, with at least three more following in 2023 or later.Christophers Big oil companies are driven by profit – they won’t turn green by themselves. The Guardian, 25 May 2021
It is probable that capitalist led transitions will bog down because of the lack of imperative for fossil fuel corporations to get out of emissions production, unless profitability is removed from fossil fuel production. We can assume the Carbon/Polluter Oligarchy will fight against that.
However, this is not the case for all Renewable projects. Cheapness is vital for community based energy transformation, and so these arguments again suggest that if we want energy transformation then it has to be bottom up. It has to involve groups of people outside the commercial sphere, who do things without a basis in profit maximisation.