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Solar and Wind to Generate Greater Return on Invested Capital Than Oil


The rapidly falling cost of renewable energy generation combined with the forecasted growth of the electric vehicle market is tipping the balance of energy investments in favour of clean energy technology over oil and gas.

A report by BNP Paribas looks at energy return on capital invested and suggests that for the same capital outlay of USD 100 billion, solar energy projects combined with electric vehicles will produce up to seven times more useful energy than the equivalent investment in oil. In an article for the Financial Times, the Global Head of Sustainability Research Mark Lewis explains why investing in renewable energy is no longer just good for ESG but is now "good money"; it has a short-run marginal cost of zero.

The cost of solar PV has fallen 100-fold in 40 years according to analysis from MIT that points to a mix of technology and policy-related factors driving this trend. The improved "conversion efficiency" of solar cells, longer-lasting technology, stable government support and emerging economies of scale mean that the cost of electricity from solar PV is now on parity with other sources of energy. According to Lewis, when you look at the long-term investment cycle for renewable energy and take into account how each additional unit generated is effectively free, the return on investment over the long term is impossible for oil to compete with.  

On the demand side, developments in the electric vehicles market are strengthening demand for electricity and renewable energy generation. While market penetration of electric vehicles is still low compared to conventional combustion engines, a market outlook from Bloomberg NEF forecasts rapid increases due to decreasing costs of lithium-ion batteries and tightening pollution regulations at local and national level.

Plummeting costs of renewable energy combined with expected growth of electrified transportation covers both supply and demand side trends. The BNP Paribas report ends with a warning to investors in oil:

"If all of this sounds far-fetched, then the speed with which the competitive landscape of the European utility industry has been reshaped over the last decade by the rollout of wind and solar power – and the billions of euros of fossil-fuel generation assets that this has stranded – should be a flashing red light on the oil industry’s dashboard."