The world is about a decade away from reaching the point of "peak fossil fuels" in the electricity-generation sector, after which less will be burned each subsequent year. That's according to BNEF New Energy Outlook (NEO) for 2016, released to subscribers on Monday. NEO is a comprehensive annual look-ahead focused on the development of global clean energy markets and technologies.

The turnabout is happening "not because we're running out of coal and gas, but because we're finding cheaper alternatives," Bloomberg.com writer Tom Randall wrote in a summary of NEO 2016's main findings.

No gas era

There are several major shifts coming to power markets. First, as Randall puts it, "there will be no golden age of gas," despite the huge ramp-up of fracked gas in the US since 2008, which displaced a lot of coal-generated power. Nuclear power won't play a major role either.

The reason: Wind and solar power costs are falling too quickly for gas to ever dominate on a global scale. Even with rock-bottom coal and gas prices, a global transition toward renewable energy will occur. NEO 2016 estimates that utility-scale solar PV will drop in price per MWh by 60 percent by 2040, to a global average of about $40 (35 euros) per MWh.

"You can't fight the future," said Seb Henbest, NEO 2016's lead author. "The economics are increasingly locked in." The report pegged the peak year for coal, gas and oil in the global electricity generation sector at 2025.

Tipping points

Second, renewable energy investment will absorb the majority of financial investment in the power sector through 2040. NEO 2016 projects that up to $2.1 trillion will be spent on new fossil-fueled generating capacity over the next 25 years globally. That's a lot of money. However, wind, solar and hydropower projects will together absorb about $7.8 trillion over the same time-frame.

By 2027, building new wind farms and solar fields will often be cheaper than running existing coal and gas generators, according to NEO 2016: "This is a tipping point that results in rapid and widespread renewables development." By 2028, affordable batteries will be ubiquitous, eliminating concerns over the intermittency of wind and solar power.

NEO estimates that for every doubling in the global installed capacity of solar PV panels, costs per unit of new panels drops by about 26 percent - a very high "learning rate." Wind power prices are also dropping fast, with a learning rate of 19 percent.

This means, according to NEO, that wind and solar PV will be the cheapest ways of generating electricity in most of the world by the early 2030s.

Catching the wind

Another factor favoring the shift to renewables is that the total numbers of installed wind turbines and solar PV plants are growing faster than total electricity demand. The result is that coal and gas-fired power plants are idle more and more of the time - because they have to pay for fuel, whereas wind turbine or solar PV plant operators don't.

Whenever the wind is blowing or the sun is shining, cheap wind or solar electricity displaces fossil electricity. The financial economics of coal and gas power plants are getting progressively worse as a result. Power companies are aware of this trend, which is why they're increasingly reluctant to invest in new fossil-fueled generating capacity.

Get ready for the electric car era

The foregoing refers to electricity generation, not fuel for transportation. Peak oil demand will take longer to arrive, because most cars will still burn diesel or gasoline for years to come. But electric vehicles (EVs) are on the verge of disrupting oil markets nevertheless - and EV penetration has major implications for electricity markets. NEO 2016 projects that EVs will make up about one in four cars on the road in 2040, adding 8 percent to total global electricity demand by that year.

China and India's carbon emissions

NEO 2016 points to India as a key emerging threat to climate stability, because its electricity demand is expected to increase fourfold by 2040, and "the country sits atop a mountain of coal. It intends to use it," Randall wrote.

That's in contrast to China, which is engaged in a massive shift from coal to renewables that will see it reduce its carbon emissions over the next 25 years. India is the main reason that global coal use will remain flat between now and 2040, rather than declining, according to NEO.

Continuing large-scale coal-burning is a key reason why the risk of catastrophic climate disruption continues to mount. There isn't much room left in the global atmospheric "cumulative carbon emissions budget" climate scientists say humanity must stay within if we are to avoid enormous climatic disruptions. The rapid rise of renewable electricity generation projected in NEO 2016 won't be enough to prevent global average surface air temperature from rising more than two degrees C compared to pre-industrial-era levels, beyond which extremely dangerous climate changes are anticipated.

New policies needed for a faster transition

BNEF's NEO 2016 report is based on extrapolations of current trends. It assumes climate policies that have already been agreed, but it doesn't assume new policies beyond those, nor does it assume surprising new jumps in technology.

The take-home message for policy-makers: More aggressive government polices are needed in order to make the low-carbon transition happen even faster.

For example, a "carbon tax" would make the financial economics of fossil fuels even worse, even sooner. If the revenues from such a tax, levied in even one major jurisdiction - say, the USA or European Union - were invested in clean technology development through competitive market mechanisms, then better and cheaper energy storage batteries, solar PV systems, wind turbines and low-carbon synthetic fuels would be available sooner.