Here’s Why the Switch to Renewable Energy Is Still an Uphill Battle

Despite calls from leaders around the world to embrace renewable energy sources, and key changes being made by a host of countries to achieve these goals, demand for coal power still reached an all-time high in 2021. In this segment of Backstage Pass, recorded on Dec. 20, 2021, Fool contributors Jason Hall and Toby Bordelon weigh in on this news and what it means for the future of energy generation. 

Jason Hall: Coal power, and this is probably going to catch a ton of people off guard, but coal power generation is on track to hit an all-time high this year on a global basis, and I know there’s got to be a lot of wait, what? Can you say that again, that doesn’t make any sense. I thought we were the Paris Agreement, we’re in a new world.

All the new money is going through renewables, what’s going on here? First, let me just offer a little bit of background here, what’s happening and why this has happened, before we pivot and Toby and Rachel to weigh in. The Paris Agreement, one of the stipulations that China and India had was to have a longer tail period for use of coal.

That’s part of what’s happening, but let’s dig in a little bit here. Toby, share a little bit of your thoughts on whether you think this is a bigger trend that might take longer than we expect, or if it’s just a blip on the energy radar. Then after you guys talk about that, we’ll have a little bit of fun and talk about our three stocks that we think deserve coal in their stockings.

Toby Bordelon: I do think that this transition away from coal is going to take longer than we’re thinking. Because look, what’s behind this? What’s behind the surge in coal generation? It actually makes sense when you’re think about it, especially compared to last year. Look at the adoption of electric cars as just one example.

When you buy an electric car, what are you really doing? You’re moving that car in terms of energy consumption from oil and gas to the electrical grid. Now, that then depends on what is in the electrical grid, as to the mix of fuels that go in to powering that car. In the U.S. today, I think currently, it’s about 20% of our grid comes from coal, and that’s bigger in some other areas of the world. When overall demand for electricity increases, the usage of coal is going to have to increase to maintain, to supply that demand.

It’s not just for electric cars, we’re seeing a surge in our energy demand generally throughout the world this year. You compare to the pandemic year and it’s pretty obvious like why that’s happening. We’re moving around more, we’re going back to work, we’re traveling more.

Manufacturing is booming this year as we get a surge in demand for goods people didn’t, couldn’t buy last year. People have more money. There’s generally demand for stuff out there, that means more demand for electricity to produce this stuff, to transport this stuff. Demand for electricity as just a general matter has increased.

Even if you’re bringing coal down as a percentage of the overall source of electricity generation in some places like we are here, you still could see the electricity generated by coal go up if your power demand increases, which is what we’re seeing across the world today. I think that’s what’s going on. This is about, I think when we talk about transition to alternative energy, it’s about more than just reducing reliance on coal.

We do have to do that faster, if you want to stop using coal, or you have to somehow bring down overall electricity demand, which good luck with that. Because, people want stuff and transition to things like electric cars isn’t going to [laughs] do much to bring the demand down.

If anything, it’s going to make it higher, so that’s what we’re seeing. When I first looked at this like, really well  I hear all about alternative energy sources coming online, this doesn’t makes sense, but it actually does when you think about it, and you look at the numbers, about what’s going on here.