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1/10 A quick journey through energy markets in 2020 via my articles for the FT this year. TLDR: 2020 is just the trailer for the full feature film that will play out over the next decade ( @BNPPAM_COM, @CarbonBubble, @CarbonPulse).
2/10 First, and key to everything else, is this fundamental insight: renewable energy i(wind and solar) is intrinsically deflationary, while fossil fuels are intrinsically inflationary. I set out the logic of this argument in this FT piece of 16 December: https://www.ft.com/content/f2a27ddb-ea88-46cc-a265-ef84bd50946b
3/10 Second, this has huge implications for the distribution of value across the global energy system — it means that as renewables take an ever greater share of global output over time so fossil fuels will also be subject to deflation (otherwise they won't be competitive).
4/10 In turn, this means that the lowest-cost OPEC producers will increasingly have an incentive to maximise their output as markets start to price in peak-oil demand. In this regard, the oil-price war of March/April this year is very instructive ...
5/10 ... as I argued in this FT piece on 16 March using Saudi Arabia as the best example. The point is, as renewables get cheaper the incentives for low-cost oil producers will change and long-term fixed-volume supply contracts will make more sense: https://www.ft.com/content/8c17582a-6547-11ea-a6cd-df28cc3c6a68
6/10 Third, the deflationary nature of renewables and hence declining cost of climate-change mitigation will accelerate global action on climate change, thus strengthening the narrative of imminent peak-oil demand, as I argued in this FT piece of 17 April: https://www.ft.com/content/bea183be-779c-491b-8ec6-f05da9fa5337
7/10 Fourth, as renewable energy costs continue to fall over the next decade, green hydrogen could be competitive with grey hydrogen in the EU by 2030 at a carbon price of €90/tonne (or €50/t in today's money), as explained in this FT piece of 2 October: https://www.ft.com/content/ecdeabd5-e013-44e1-b885-0b7264923e29
8/10 Interestingly, and as I explained in this FT article of 1 July, the EU carbon market seemed already to have figured out earlier this year that prices will need to go much higher: over time https://www.ft.com/content/7bb3bde5-3cdd-4551-a5be-29ddf0b2cf98
9/10 It should come as no surprise, then, that 2020 is ending with record-high carbon prices — yesterday the front-year EUA contract hit a new all-time high of €33.5/t (albeit it still well below the €50/t that is needed to put the EU onto a net-zero trajectory).
10/10 In short, the deflationary nature of renewable energy (wind and solar) is the key to understanding both the dramatic disruption in energy markets already seen in 2020, and, more importantly, the shape of things to come. Get ready for much deeper disruption./ Ends.
