When I would present to clients and advisors in the mid-2000s, I often spoke about some potential transformations that would have a large impact on the investing landscape. Energy independence was one of those items. I always imagined it coming from alternative energy and improved batteries. Based on information in the U.S. Energy Information Administration’s Annual Energy Outlook, it looks like the expectations for alternative fuels and batteries are on the decline. For example in the electricity segment, natural gas is expected to increase its share of electricity generation more than renewables through 2040.
In the transportation segment, this year’s report was much more pessimistic about alternative fuels and electric vehicles than the report issued last year. For example:
Alternative fuel vehicle sales were expected to be 1.3 million in 2035 compared to the 2.9 million expected for the same year in last year’s report
Battery powered vehicles are now expected to be 119,000 in 2035 compared to an estimate of approximately 340,000 in last year’s report
By 2040 less than 1 percent of vehicles are expected to be all electric
Reading between the lines, the changes represent a huge cut in the expected use of E85 (85% ethanol) and the effectiveness of batteries. Hybrids are expected to pick up some of the declines in flex fuel and battery powered vehicles, but not all of it. The bottom line: According to the government the vast majority of cars will use fuel refined from oil as a major source of speed, especially acceleration.
Renewable energy, alternative fuels, and battery technology are still going to be important. However, the big improvement in the U.S.’s energy position isn’t coming from the “energy sources of tomorrow.” Instead, improved drilling technology has opened up a wealth of oil and natural gas. Someday the predictions that the world will run out of oil and gas may well come true. Until then energy policy should be balanced between alternatives and finding more of the fuels that power the vast majority of the economy today.