Don’t worry about the Paris Agreement, the market will drive us to ditch fossil fuels

There are three technological advances that are combining to shift the balance away from fossil fuels: the falling costs of wind, solar and batteries

Wind and solar power get cheaper every year (Getty)

When is the tipping point for renewable energy? Because when we hit it and renewables become cheaper than fossil fuels we won’t need subsidies or international agreements such as Paris to shift the world towards a low-carbon economy. The market will do the job for us.

We are not there yet. Right now fossil fuels provide about 80 per cent of global primary energy. There are some users of energy, aircraft for example, where it is hard to see oil being supplanted for a generation at least. But whereas even five years ago people worried about “peak oil” as the moment when supply of oil could no longer rise because we were not discovering enough, now peak oil means something different – the point at which demand reaches its peak and starts to fall. We may have already passed peak coal. In 2015 world coal production fell, the first time it had done so since 1998.

Start with electricity. There are three technological advances that are combining to shift the balance away from fossil fuels: the falling costs of wind, solar and batteries. There are of course other renewables, notably hydro, which is long-established and works very well. And of course there is nuclear power. But the capacity to increase hydro is limited and there are strong environmental concerns, from for example the Three Gorges project in China. And quite aside from the arguably greater environmental worries about nuclear, it is not commercially viable. There is not one single nuclear power plant being built anywhere in the world without some form of government support.

By contrast wind and solar power get cheaper every year, and much faster than anyone predicted even two or three years ago. There are three reasons for this.

One is the usual savings you expect from incremental advance. So wind turbines are simply better now than they were five years ago: they are cheaper to build and they generate more power from any given amount of wind. Solar panel costs have fallen even faster, partly because China has geared up production, partly because of design improvements.

The second is that the soft cost of installations – the admin and servicing costs – is also falling. The kit itself is cheaper, but in addition the cost of running the kit is becoming cheaper too.

Third, there is scale. We think of solar power as the panels on our roofs and as everyone knows that costs of those are falling fast. But the even greater efficiencies have come from utility-scale solar. This does not work everywhere. You have to have the land and you have to have the sun. But in places such as Arizona, where much of the land is desert and there is plenty of sun, it works very effectively. Besides, it is helpful to have peak demand in the daytime from air-conditioning.

The falling cost of battery storage complements the shift to renewables. Sceptics of wind power make the quite reasonable point that you have to build back-up gas power stations to take over when there is no wind. But the more battery capacity that can be built into the system the greater its resilience. The switch to electric cars is also happening far faster than predicted even two years ago, for Tesla has scared the mainstream manufacturers. Thanks in part to the automotive industry, the costs of battery storage have halved in the past five years.

Beyond solar and wind, are there other potential winners? There may be. It is certainly possible to produce power from tidal energy or waves. But ask yourself this. How many suitable tidal estuaries are there in the world that are close to large urban conurbations? Not many. And how many conurbations have stormy seas nearby? Hardly any. They are a bit like the hovercraft: a technology that works but isn’t a winner. Realistically the future will be solar or wind.

Pull all this together and what do you get? There are enthusiasts for renewables who argue that we have already reached the tipping point. For example the World Economic Forum produced a Renewable Investment Infrastructure Handbook a few months ago that argued that the cost of generating electricity from renewables was close to or below that of coal and natural gas.

My own judgement is more cautious. If there were really already a strong business case for investment the money would be flooding in. At present there are places where you can make the numbers just about work without subsidies but there is not yet a clear cost advantage. This is not like the car market where the engineering simplicity of an electric motor vis-à-vis an internal combustion one complements the narrowing costs. Electricity produced by solar or wind is not better than that produced by gas. In fact it is worse because it cannot be guaranteed 24/7.

It is however quite plausible that in three or four years solar plus battery storage will be cheaper than fossil fuels in many locations: southern US states, around the Mediterranean, much of Africa, southern China, and the India sub-continent. In other places, including the UK, wind power will be a fully competitive generator of power by 2025.

The hardest thing is to gauge the speed of technological change. The Royal Navy made the decision to switch from coal-fired warships to oil-fired ones in 1912, and every other major navy followed. But coal hung on for electricity generation and production peaked, if indeed it has peaked, in 2014.

Now contrast that with transatlantic travel. It was not until 1947 that there were regular non-stop flights between New York and London. But by 1958 more people crossed the Atlantic by plane than by ship.

So the tipping point for renewables for electricity production, the moment when more power globally is produced by renewables than fossil fuels? My guess is sometime in the 2030s – which on a broad historical perspective is not very far away.