Mr. Kingsmill Bond:

I thank the Chairman and members of the committee for inviting me to speak. I have been asked to focus on the global context for this energy transition. I work for a think tank called Trusted Sources and I focus on the implications for financial investors of the shift to new energy. I have provided a submission and a number of slides. Having spoken to a number of people this morning, I will change the order of my submission a little, if I may. I will first set out what we think is going on, second, I would like to consider the implications of the transition for investors and, third, if there is time, I will debunk some commonly held assumptions about the energy transition.

First, to explain what is going on, the world is undergoing a switch from fossil fuels to renewables, with implications as profound as the switch from biomass to fossil fuels 250 years ago, which began in England and launched the industrial revolution and the modern world. This revolution is rapid, it is global, it is disruptive and it is now. As a Deputy whom I met this morning said to me, Ireland missed out on the last energy revolution and it should not miss out on this one. The initial driver of this revolution was regulation but it is now costs. Solar, wind, lithium ion batteries and electric vehicles are starting to drive out the fossil fuel alternatives, not just because they are better for the environment and better for people’s health, but because they are cheaper and easier to deploy. It was countries such as Germany and the US which developed the technology, but in fact the key driver of change is now the emerging markets in countries such as China and India, and regions such as south-east Asia and, eventually, Africa, where energy demand is growing and where, for the first time, there is a real choice of energy supply options. What we have is a classic emerging market energy leap-frog. Nonetheless, we should not take the problems the transition faces in Europe as indicative of what is happening globally.

The impact of this switch on companies takes place when demand for the old energy starts to fall. This has already happened for coal, for thermal electricity in Europe and for per capitafossil fuel demand, so we are seeing a series of peaks. At current growth rates for solar and wind of 20% a year, the world is only three and a half years away from peak fossil fuels demand, and this will be followed by peak demand for petrol cars and peak demand for oil. Once demand peaks, declining demand will unleash more competition between fossil fuels. It will also embolden policy makers who seek to reduce pollution by increasing carbon taxation, which will then lead to an environment of falling prices for producers of fossil fuels.

That is on the negative side. On the positive side, the shift will unleash a burst of creativity as the world’s entrepreneurs are able to create and make use of increasingly low cost renewable energy, resulting in a world of distributed energy supply, digitised energy, autonomous cars, electric vehicles, smart grids and so on.

In the second part of my presentation, I want to talk to what is my key brief, which is what this means for financial markets. Disruptive change of the kind I have mentioned usually means that the incumbents suffer as new entrants come in and prices fall. Incumbents are the companies which have stranded assets at the top end of the cost curve. They have unneeded infrastructure and management teams which are, frankly, in denial about what is going on. We have already seen spectacular losses for investors in coal companies and electricity companies. Over the last 12 months, the disruption has started to spread into the automotive industry and we believe it will continue to spread into a series of new industries, most notably oil and gas. At the same time, we are seeing a shift of capital, ideas and talent into the new areas of solar, wind, batteries, electric vehicles and all of the software and services that surround them.

The real question is whether this is priced in by financial markets. There is still a debate in financial markets about the nature of the energy shift. While there are some impressive advocates of the view I have just set out, such as Amory Lovins, the consensus view remains that the energy change will take decades and that the lack of investment in new oil wells means oil prices will rise and then trend upwards over time. This consensus, which I will discuss in the final part of my submission, is largely formed by the incumbent fossil fuel sector, which, of course, has no wish for change. As a result, the share prices of these companies are still trading above book value and, for the most part, have not seen a collapse.

I would argue we are still in a position where it is possible to exit most fossil fuel companies at a reasonable price. If we are right about this transition, this will not be possible in five years time. A hedge fund manager may try to time this exit but strategic investors do not have this luxury.

In the final part of my submission, I want to talk about some of the most common counterarguments I hear, which are possibly resonating in the minds of committee members and which I talk about to many investors. There are five such counterarguments. The first is that people often say the International Energy Agency, IEA, has projections of future supply of solar and wind which are very slow and small. I would respond that the IEA produces superb backward looking analysis but very weak forward projections, and that its forward projections have consistently and dramatically understated the growth of renewables. For example, in 2000 the IEA forecast that in 2015 the world would have 6 GW of solar capacity, when in fact it had 226 GW, many orders of magnitude larger.

The second commonly made argument is that investors do not need to worry because the supposed lesson of history is that changes in energy systems take place slowly. Again, this is incorrect. While systemic change is indeed slow, marginal change is extremely quick. The bankruptcy of large numbers of coal companies at a time when global coal demand was just 2% off its all-time high is a very good indication of that.

The third misconception is that renewables are still too small to make a difference. In 2016, for example, solar and wind made up just 2% of global energy supply. However, it is not the total size that matters; it is the share of the change. In 2016, to take BP data because it is the most commonly used database, solar, wind and other non-fossil sources made up 62% of the increase in global energy supply but, from our calculations, by 2020 they will make up all incremental supply.

The fourth argument I often hear is that renewables are expensive and will continue to need subsidy for decades to come - that the renewable revolution is nothing other than a mirage driven by idealists. This is backward looking and no longer accurate. The cost of solar and wind has fallen so fast over the last five years that they are now cheaper than fossil fuels in a very large number of locations. A bit like the mobile phone, it has moved from being a rich man's toy to a poor man's necessity, as, for example, solar lights are rolled out across Africa.

The final misconception is that the intermittency of solar and wind means they can never rise beyond a small share of the entire energy mix. There are two important counterarguments. First, there are plenty of countries, including Ireland, where solar and wind already make up over 20% of electricity supply. Second, fossil fuel demand will peak when solar and wind make up just 12% of electricity supply and 5% of energy supply.

The best example that I can point to - it is a very good example - is to look at the early 20th century transition. One example from the UK in 1907 is the demand for gas for lighting peat at the time, when electricity only had 2% of the market and far higher costs.

My final point is simply that we must look for radical change when these new technologies are still relatively small, and we are now at that position.