Could "lifetime production" become key metric for renewables?

Analysis from Bloomberg New Energy Finance shows that the energy reserves contained in wind and bioenergy projects in the US and Brazil are significant compared to oil and gas.

Energy analysts are used to calculating the lifetime value of underground fossil fuel reserves. When it comes to renewable energy assets, however, they look at annual capacity and output, ignoring potential lifetime production. A new report by Bloomberg New Energy Finance has – for the first time – placed US and Brazilian wind and bioenergy projects on a basis comparable with fossil fuel reserves, and found them to be considerable.

The report, entitled Renewable Reserves: Testing the Concept for the US and Brazil, found that in Brazil, the energy resource equivalent of existing renewable projects amount to over two fifths of the country’s proven oil and gas reserves, in terms of expected lifetime energy output. The US possesses greater oil and gas riches. Yet, even there, the analysis found that the Energy Resource Equivalent of existing wind and bioenergy projects are equivalent to approximately one seventh of the size of that country’s fossil fuel project reserves (1).

Guy Turner, head of economics for Bloomberg New Energy Finance, said: “Traditional energy companies, and the financial markets, have tended to disregard the reserves inherent in wind, biomass-to-power and biofuel projects, while heavily weighting those offered by the hydrocarbon extraction industry. There has been little focus on this issue to date.

“However, this pioneering report shows that if you calculate the reserves embedded in renewable energy projects on the same energy basis – millions of barrels of oil equivalent – they can add up to big numbers. This work should give investors a new way of assessing the value of the sector.”

Until now, industry, investors and policy-makers have lacked a widely-agreed methodology for comparing renewable energy projects with each other, and with fossil fuel projects. In the coal, oil and gas industries, resources and reserves are measured in terms of volume, with the quantities categorised according to specific levels of certainty.

In contrast, renewable projects are typically expressed in terms of annual production capacity. This says nothing about the energy contribution these projects are expected to make over their lifetime. Furthermore, there has not been a consistent approach for describing the technical and economic maturity of renewable energy projects and the level of certainty about their energy output, for instance discounting undeveloped renewable energy resources in a standard way comparable to unproven fossil reserves.

The study adopted a simple approach for quantifying and categorising renewable energy as “commercial projects” and “potentially commercial projects” based on their stage of development. The concept was then applied to the wind and bioenergy sectors in the US and Brazil by analysing project level data and the results were converted from megawatt-hours to millions of barrels of oil equivalent in order to compare them to estimates for fossil fuel reserves.

The study is being used as a tool to communicate the concept of renewable reserves, with the aim of bringing more experts and organisations into the discussion. Development of a full reserve accounting methodology will involve more work, for example writing detailed criteria for assessing the economic viability, technical feasibility, and completion uncertainty of projects in a development pipeline. A leader in this work is the multi-stakeholder Renewable Reserves Initiative, which is currently developing such a methodology.

The Bloomberg New Energy Finance study was commissioned by BP, a leading member of the Renewable Reserves Initiative, to complement its ongoing work.

The full report is available for download here:

(1) The study did not cover the reserves of projects in solar, geothermal or hydro-electric. Including those technologies would increase further the estimated renewable energy reserves of the US and Brazil.

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Bioenergy  •  Energy efficiency  •  Energy infrastructure  •  Policy, investment and markets  •  Wind power