, 28 tweets, 13 min read Read on Twitter
This is HUGE:

Fossil-fuel investments are running at terminal-decline levels, and the volume of #coal generator approvals has fallen below plant retirements, possibly for the first time since the 19th century: (thread)

bloomberg.com/opinion/articl… #climatechange #energy #oott
Energy-watchers should check the latest @IEA World Energy Investment report released this week. webstore.iea.org/download/direc…

It contains some fascinating data suggesting that the energy transition is happening much faster than we think. (HT @TimBuckleyIEEFA for pointing this out)
@IEA @TimBuckleyIEEFA As is often highlighted by critics of energy transition, global coal generation was never higher than it was in 2018.

That covers up substantial differences though. In the past decade it fell nearly 40% in the U.S. and nearly 25% in Europe, but rose 60% in Asia:
That's why tracking the build-out of new coal-fired power plants is really important.

If they keep getting built faster than they're closed (and the @end_coal Global Coal Plant Tracker endcoal.org/global-coal-pl… has 236GW of turbines under construction) then we're in trouble.
@end_coal Well, 2018 looks to have been the year when the world turned the corner.

Per the IEA numbers, Final Investment Decisions on new coal plants were ~22GW in 2018. Retirements, by contrast, were about 31GW.
@end_coal Barring a reversal of the declining investment trend that's been ongoing for a decade, this puts us within sight of a peak in coal plant capacity.

It takes ~4 years to build a plant so we're still seeing 2015-level FIDs coming online. But the peak should arrive by 2021 or 2022.
@end_coal There's still that fat 236GW pipeline of plants that are under construction -- but planned or envisaged retirements in the U.S., Europe and India alone are enough to offset almost all of that:
@end_coal What's in some ways more striking is the general investment drought in fossil fuels, and what it says about decarbonization pathways.

For the first time that I've seen, this @iea investment report compares actual spend to levels predicted by its scenario analyses.
(small parenthesis -- to understand IEA scenarios and why they matter, read this great piece bloomberg.com/opinion/articl… by @liamdenning and follow @kmac)
@liamdenning @kmac There's two principal scenarios to think about:

New Policies Scenario: Assumes current climate-mitigation policies plus additional efforts that are more aspirational than detailed at present.

Sustainable Development Scenario: Good odds of keeping warming below 2 degrees C.
To oversimplify (again, read @liamdenning and @kmac), most analysts assume we're heading on an NPS-style pathway, and that switching to an SDS-style pathway would entail a radical transition that we're nowhere close to yet.
@liamdenning @kmac The latest investment report suggests that's not the case.

Indeed, to hit the SDS, most of the fossil fuel industry JUST NEEDS TO KEEP INVESTING AT CURRENT TREND LEVELS.

The thing that requires the radical change is not the low-carbon pathway, but the high-carbon one.
Have a look at petroleum. The IEA SDS envisages financial sign-off of new oil and gas reserves averaging ~8bboe and ~16bboe respectively over 2018-2025.

That's basically the level at which the industry has been investing for the past 3-5 years:
We're WAY below the NPS, which is normally treated as the central scenario. In fact for gas we're even below the SDS.

It's a similar picture with coal and gas power stations. (bear in mind here that the comparison in these charts is the 2025-2030 period):
Now there's one big obvious counterpoint to this.

The resources industry is notoriously cyclical. So it's possible, even likely, that we're just seeing a low-point in the investment cycle. Mining and energy companies wasted a fortune on capex over the past decade.
As a result they've been focused on giving cash back to shareholders instead of building new projects.

But at some point, the investment drought should lead to supply shortages, which should in turn lift prices, which should spark investments in new capacity.
Here's the thing, though: You can really only tell a cyclical low from a structural decline in retrospect.

And at some point, betting that an ongoing fall in investment is just a temporary phenomenon and not a permanent change becomes a version of praying for the second coming.
I honestly don't know when that point is -- and I'd love to hear expert views on this. But we're now 5-6 years into the gas industry investing as if it sees the SDS as its central case.
If a new fossil-fuel investment boom doesn't start up soon, the SDS-as-central-scenario will be the revealed preference of energy investors.

That would mean the energy companies who produce fossil fuels are markedly less optimistic about their prospects than policymakers.
It's worth pointing out too that this is a *generalized* investment drought.

Investments in renewables are only running at about 50% of what the IEA reckons they need to be hitting -- so it's not like all the smart money is being placed on the energy transition.
What's happening is that the smart money is *hedging its bets* -- which is what you'd expect, given the rapid declines in renewables and battery costs and the unpredictable ways this is likely to play out.
But I think we should recognize that more than we do.

The one thing we can forecast with some certainty from this investment data is that energy markets are going to be *undersupplied*, assuming the IEA's demand projections are correct.
But the data doesn't seem to be telling us with any confidence whether we're heading on the NPS pathway to 2.7C of warming, or the SDS pathway below 2C.

Your view of that depends on your opinion of the cyclical/structural issue, but to me both paths seem plausible.
Anyway, this has been a long thread so I'll stop there. But it's worth remembering to look at these future-oriented indicators rather than making assumptions based on historic data, because in financial markets past performance is, famously, not an indicator of future outcomes.
As I argued last year, the end of coal could be closer than it looks bloomberg.com/opinion/articl… -- and the same now goes for other fossil fuels. (ends)
Small postscript: As @kmac (full disclosure: we're married) would tell you, the SDS is *not enough*. See that @liamdenning piece: To have good odds of keeping warming to 1.5C, you need a *much more ambitious* pathway: bloomberg.com/opinion/articl…
@kmac @liamdenning Still, the *conventional wisdom* is that the SDS is a worthwhile but ultimately probably unachievable pathway, and that realistically we're likely to substantially overshoot it.

That may be the case, but it's more a hunch than a solid inference from the investment data. (ends)
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