In a report with a section titled The Death Toll for Petrol, BNP Paribas issued a clear call for a pivot to solar and wind for investors considering the best energy sources for powering vehicles.
“The economics of renewables still crush those of oil,” Mark Lewis, the global head of sustainability research at BNP Paribas Asset Management, said in a report this month. “The economics of oil for gasoline and diesel vehicles versus wind- and solar-powered EVs are now in relentless and irreversible decline.”
Solar and wind investments for powering electric vehicles will result in six to seven times more useful energy for transportation than oil will at $60 a barrel, Lewis’s report stated. Even with the cost of building new infrastructure needed for wind and solar, The oil industry has the advantage of incumbency, which is sure to evaporate over time, the report concludes.
In the report, they hypothesized that an investor with $100 billion must decide to invest in oil or renewables, knowing that the energy will be used to power cars and other light vehicles. They found that crude oil would have to drop to $9-to-$10 a barrel for gasoline to remain competitive in the long term. For diesel the picture is a little better, and it can remain competitive with oil at $17-to-$19 a barrel.
West Texas Intermediate crude, the U.S. benchmark grade, has traded between $42 and $77 a barrel over the past year on the New York Mercantile Exchange. Brent crude, the global benchmark traded in London has traded at a premium during the period.
Solar and wind are more or less free, abundant and renewable. Their costs are in their harnassing, setting up the infrastructure, which have plunged, Lewis wrote. This isn’t the case for oil, which for the first time is facing a competing energy source with a short-run marginal cost of zero.
The cost of installing new utility-scale onshore wind and solar power plants has dropped about 70% and 90%, respectively, Lazard, a financial advisory firm, said in its latest annual Levelized Cost of Energy Analysis.
With vehicles responsible for 36% of oil consumption, and susceptible to replacement by electrification, oil companies should be careful when investing in new long-term projects that have break-even costs much above $20 a barrel, according to the report from Paris-based BNP.
In what may be a sign of things to come, Hyundai Motor announced it’s solar roof-charging system for the New Sonata Hybrid on Aug. 2. The system will support the car’s electric power source, improve fuel efficiency and cut greenhouse gas emissions. The company said that in coming years it will roll out the technology to other vehicles across its range. Toyota announced testing of a solar-powered Prius last month.
The success of the rollout of wind and solar power in Europe’s utility industry should be a warning for those investing in oil, the BNP Paribas report concludes. Fossil-fuel power plants have had to close across the continent as a result of the rapid switch to renewables.
“The economics of energy are now on the side of the angels,” Lewis said in an Aug. 4 opinion piece in the Financial Times. “This should be a flashing red light on the oil industry’s dashboard.”
The switch to renewable energy is taking place and this report is the latest evidence that the trend should accelerate. This leaves ethical investors in a sweet spot, because putting money in companies cutting greenhouse gas should be money-making proposition for decades to come.