Will Falling Oil Prices Hurt Or Help Renewable Energy?

Will Falling Oil Prices Hurt Or Help Renewable Energy?

Some investors worry that falling oil prices will bring down demand for alternative energy sources such as wind and solar. However, business leaders and experts in renewable energy say the impact of low oil prices is limited. Check out what some business leaders had to say on this CCTVNews video at the recent World Future Energy Summit in Abu Dhabi.

Falling oil prices are unlikely to affect renewable and clean energy, and the proof lies in hindsight, experts say.

In 2014, global clean energy investment increased by 16 percent to $310 billion despite oil prices plummeting — proof of how strong the clean energy industry really is, according to a report in VenturesAfrica.

Falling oil prices have a limited impact on clean energy, and price volatility demonstrates how unstable petroleum sources are, according to Devashree Saha and Mark Muro Saha. The Sahas are policy analysts and fellows at the Washington, D.C.-based Brookings Institution.

Here’s why clean energy industries won’t be hurt by the petroleum glut, they said in the VenturesAfrica report.

First, oil and renewable energy do not directly compete with each other. Oil is mainly used to make transportation fuels. Renewable energy is mainly used to generate electricity.

Diesel and other petroleum-based fuels constitute just 5 percent of global power generation today compared to 25 percent in 1973, according to the International Energy Agency. Oil-price fluctuations therefore will have little impact on renewable energy sources such as wind, solar, and biomass in advanced economies, ensuring that they remain economically compelling.

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Second, there is an important price difference between energy derived from commodity-based sources such as oil and coal, and technology-based sources such as wind and solar. Over the long run the cost of energy from commodity-based sources invariably declines as technology innovation proceeds.

The investment firm Lazard said the cost of energy from solar and wind farms has become competitive with electricity produced from conventional fuels such as natural gas, nuclear and coal, even without subsidies in some markets. The cost of utility-scale solar has fallen 80 percent and wind energy cost fell 60 percent in the last five years.

On the other hand, commodities-based sources are finite, expensive to find, extract, ship, and refine, and inherently subject to price volatility.

The U.S. shale boom has contributed to recent volatility in oil prices. Driven by advancements in fracking technology, it has generated expectations of cheap U.S. gasoline, VenturesAfrica reports.

Just how long the shale production boom will last, no one knows. The U.S. Energy Information Administration projects U.S. shale oil production will peak by 2020 and then decline.

The oil price crash could hurt the short-term outlook for certain specific clean energy technologies such as electric vehicles that do compete with oil-based transportation, VenturesAfrica reports. However, experts say electric vehicles are inevitable.

Oil prices can only go up. The cost of most clean energy technologies are just beginning to decline due to improved efficiency and manufacturing improvements.