Even with the cost of building new infrastructure to cope with new wind and solar, "the economics of renewables still crush those of oil", BNP Paribas’ asset management arm concluded.
However, the oil market has a "massive incumbency advantage", according to the head of sustainability research at BNP Paribas Asset Management, Mark Lewis.
Oil’s "massive scale" and ability to provide "very large and effectively instantaneous flows of energy" currently make it economically preferable to variable renewables, the bank added in its report 'Wells, Wires and Wheels'.
However, Lewis added given the necessary scale, new wind- and solar-powered EVs could replace oil-powered cars, and other light-duty and mid-heavy vehicles — which account for about 40% of global oil demand.
For the same capital outlay, new wind and solar PV projects in tandem with battery-powered EVs will produce 6.2-7 times as much energy that can be used for transport, than petrol, according to BNP Paribas’ research (see below).
EVs powered by new-build renewables would be between 3.2 and 3.6 times as cost-efficient as diesel (see below), the French banking giant added.
New-build offshore wind — assuming a price of $70/MWh and 1,881TWh generated over 25 years — would produce 6.2 times as much energy as petrol, and 3.6 times as much as diesel.
BNP Paribas assumes a cost of $60/barrel of oil, one million barrels of oil equivalent as equal to 1.7TWh of power from renewables.
Meanwhile, new onshore wind — assuming a price of $65/MWh and 1,667TWh generated over 25 years — would produce seven times as much energy as oil, and 3.2 times as much as diesel.
BNP Paribas estimates that in order to compete with renewables-powered EVs in the future, oil companies would need to be selling barrels of oil at $9-10 to produce petrol, and $17-19 to produce diesel. At these prices, they would only break even, the bank concluded.
Building new wind and solar projects, complete with the enhanced network infrastructure required to match the 2018 level of mobility provided by gasoline every year for the next 25 years, would cost between $4.6 and $5.2 trillion, BNP Paribas added.
By comparison, extrapolating total expenditure on gasoline in 2018 for the next 25 years, would mean $25 trillion would be spent on mobility.
"If the world were building out the global energy system from scratch today, then the economics alone would dictate that at a minimum, the road-transportation infrastructure would be built up around EVs powered by wind- and solar-generated electricity rather than around oil, refineries, and gasoline and diesel vehicles," said Lewis.
"But there is a catch, and it is a big one: oil has a massive incumbency advantage," he added.
The bank cited BP’s Statistical Review of World Energy, released earlier this year, which found that oil supplied 33% of global energy in 2018, compared to only 3% from wind and solar.
And it added EVs are likely to remain more expensive than internal combustion engine and diesel vehicles until 2023-25.
However, the competitive advantage is set to shift decisively in favour of EVs over oil-powered vehicles in the next five years as the net-energy yield over the full life-cycle of renewables versus oil continues to improve, BNP Paribas concluded.
"On the most generous reading the oil industry will, for the first time ever, have to cope with the concept of the price elasticity of demand for 40% of its production.
"On the most dramatic reading, it is only a matter of time before the economics of renewables and EVs overwhelm oil and displace up to 40% of its current demand," said Lewis.