Most Popular
1. It’s a New Macro, the Gold Market Knows It, But Dead Men Walking Do Not (yet)- Gary_Tanashian
2.Stock Market Presidential Election Cycle Seasonal Trend Analysis - Nadeem_Walayat
3. Bitcoin S&P Pattern - Nadeem_Walayat
4.Nvidia Blow Off Top - Flying High like the Phoenix too Close to the Sun - Nadeem_Walayat
4.U.S. financial market’s “Weimar phase” impact to your fiat and digital assets - Raymond_Matison
5. How to Profit from the Global Warming ClImate Change Mega Death Trend - Part1 - Nadeem_Walayat
7.Bitcoin Gravy Train Trend Forecast 2024 - - Nadeem_Walayat
8.The Bond Trade and Interest Rates - Nadeem_Walayat
9.It’s Easy to Scream Stocks Bubble! - Stephen_McBride
10.Fed’s Next Intertest Rate Move might not align with popular consensus - Richard_Mills
Last 7 days
AI Stocks Portfolio and Tesla - 23rd May 24
All That Glitters Isn't Gold: Silver Has Outperformed Gold During This Gold Bull Run - 23rd May 24
Gold and Silver Expose Stock Market’s Phony Gains - 23rd May 24
S&P 500 Cyclical Relative Performance: Stocks Nearing Fully Valued - 23rd May 24
Nvidia NVDA Stock Earnings Rumble After Hours - 22nd May 24
Stock Market Trend Forecasts for 2024 and 2025 - 21st May 24
Silver Price Forecast: Trumpeting the Jubilee | Sovereign Debt Defaults - 21st May 24
Bitcoin Bull Market Bubble MANIA Rug Pulls 2024! - 19th May 24
Important Economic And Geopolitical Questions And Their Answers! - 19th May 24
Pakistan UN Ambassador Grows Some Balls Accuses Israel of Being Like Nazi Germany - 19th May 24
Could We See $27,000 Gold? - 19th May 24
Gold Mining Stocks Fundamentals - 19th May 24
The Gold and Silver Ship Will Set Sail! - 19th May 24
Micro Strategy Bubble Mania - 10th May 24
Biden's Bureau of Labor Statistics is Cooking Jobs Reports - 10th May 24
Bitcoin Price Swings Analysis - 9th May 24
Could Chinese Gold Be the Straw That Breaks the Dollar's Back? - 9th May 24
The Federal Reserve Is Broke! - 9th May 24
The Elliott Wave Crash Course - 9th May 24
Psychologically Prepared for Bitcoin Bull Market Bubble MANIA Rug Pull Corrections 2024 - 8th May 24
Why You Should Pay Attention to This Time-Tested Stock Market Indicator Now - 8th May 24
Copper: The India Factor - 8th May 24
Gold 2008 and 2022 All Over Again? Stocks, USDX - 8th May 24
Holocaust Survivor States Israel is Like Nazi Germany, The Fourth Reich - 8th May 24
Fourth Reich Invades Rafah Concentration Camp To Kill Palestinian Children - 8th May 24

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Why Lower Crude Oil Prices Won’t Kill the Renewable Energy Boom

Commodities / Renewable Energy Nov 14, 2014 - 02:05 PM GMT

By: Money_Morning

Commodities

Kent Moors writes: Whenever oil prices drop, everyone always wonders how it will affect wind and solar power.

It follows from the traditional assumption that renewables like these are only competitive when oil and natural gas prices are high.

After all, the early stages of wind and solar power came with a hefty front-loaded price tag, requiring massive government subsidies to both producers and end users to get off the ground.


Some states even introduced legal measures that required that utilities buy a certain percentage of their energy needs only from renewables.

All of this only added to the wider perception that renewables couldn’t truly contend, especially if oil and natural gas prices fell.

But those days are now rapidly coming to an end…

The Key to All the Controversy is Grid Parity

The larger truth is that the wind and solar landscape has changed significantly. Most of the subsidies have been phased out, and mandatory renewable energy purchases are now facing significant political opposition.

As utilities have argued for years, both the subsidies and the obligated energy buys have translated into higher costs to the consumer.

There is also the common problem built into renewable electricity production: Since the power cannot be stored, it’s not always available when needed.

After all, the sun doesn’t always shine and the wind can suddenly go calm. That has required energy producers to duplicate sourcing in a legal no man’s land, adding to the effective expense.

Of course, environmentalists have long maintained that even some additional cost is worth the major advantage gained on the pollution side. Needless to say, solar and wind remain far less damaging to the environment, even though wind towers create dangerous impediments for birds, especially migrating fowl.

Yet it is ultimately price that will put an end to all of these controversies.

And in this case there’s always one overriding consideration, often looked upon as the Holy Grail for renewables.

It’s something called grid parity

Grid parity refers to different sources of energy being able to deliver electricity at the same cost. Subsidies aside, everything from the family budget to broader economic recoveries hinges on the reliability and expense of electricity.

What’s new and not that well-known is that solar power has reached grid parity in several regions of the West and Southwest, while wind is reaching that point in Texas – where more power is generated from wind than anywhere else in the country.

A Place Where Ebola and Insurgents Aren’t the Only Problem

So if grid parity is practically here, how is the situation different now that oil prices are lower?

Well, that depends on where you are in the world.

Oil products are no longer the main source of electricity in North America or Western Europe. In these areas, the primary battleground for market position will be with natural gas.

Yet, in other parts of the world, the use of oil to generate power is significant. These also happen to be areas where the demand for power is growing at the highest rate. West Africa in general – and Nigeria in particular – is a prime example. The combination of Ebola and radical insurgency may be capturing the headlines there these days, but the electricity situation in this area is a major story as well.

Now that may seem odd on the face of it. Nigeria is a major producer of light sweet crude, the most desirable of oils. However, its refinery sector is in shambles, which means most of the crude is shipped out of the country as raw material.

That’s critical, since they can only generate only about 25% of the electricity needed on a daily basis. The gap is filled with diesel and other oil products, making oil the primary energy source.

Because the diesel cannot be produced locally in sufficient volume, it must be imported. So the following irony ensues: one of the world’s leading oil producers has to import oil products to provide three-fourths of its daily power requirements.

So in places like these the price of oil does indeed make a fundamental difference in the availability of electricity. And while there are moves to introduce renewables in these areas, there’s neither the political will nor sufficient working capital to accomplish it. A vicious cycle has taken root.
It’s All About the Price

Meanwhile, the low cost of both coal and oil has virtually scuttled a national campaign for renewable energy in Australia. This was also accompanied by some very poor national planning and equally faulty economic assumptions at the outset.

In the U.K., the battle is over onshore wind power. Offshore power is already part of the grid. However, the industry is now looking suspiciously at the Conservative Party agenda should they retain 10 Downing Street (independently or in coalition) after the next Parliamentary election.

In fact, The RenewableUK 2014 conference began yesterday in Manchester and the kickoff speech by the trade body’s chairman, Julian Brown, left little doubt where the industry thinks the lines are being drawn.

Brown addressed the price issue first, emphasizing that wind power (generated mainly offshore in the North Sea at this point) is approaching grid parity. It is still subsidized, and that has been an increasing political issue. The current Conservative leadership is pushing for new nuclear plants (owned by foreigners, no less) and an expansion of fracking to exploit available shale gas.

Aside from providing a general barometer for energy prices, the decline in oil is less a major threat to wind power in the U.K. than the availability of alternative substitutes for both oil and coal. Wind has the strong support of environmental groups, but they hardly sway either side of the aisle in the House of Commons.

The simple fact of the matter is this: Wind power will not achieve parity there unless it can be expanded onshore. That is where the next political fight is looming. It has already become a partisan issue and is likely to divide the country. Despite opting not to become independent, Scotland is already ground zero in this developing donnybrook.

In the U.S., the rise of shale and tight oil as a major energy ingredient doesn’t directly translate into a threat for renewables, since there is so little electricity generation coming from oil now or in the future. Once again, this becomes a pricing issue, with oil serving as a surrogate standard.

Achieving grid parity is more a perceptual matter than anything else, and (rightly or wrongly) consumers view this rather straightforwardly as what translates into their monthly bill.

It’s not surprising, therefore, that a renewable offensive has already begun. The American Wind Energy Association has just come out with an analysis concluding that wind power in Texas adds at least $3.3 billion annually to the state economy, with $1.2 billion in savings yearly to consumers.

As in the U.K., the push is coming from an industry lobbying group with an obvious vested interest in the outcome.

Nonetheless, the arguments in defense of renewables are moving into the category that used to be the primary argument used against them by their opponents.

Price.

This is going to get really interesting.

Source : http://oilandenergyinvestor.com/2014/11/lower-oil-prices-wont-kill-renewable-energy-boom/

Money Morning/The Money Map Report

©2014 Monument Street Publishing. All Rights Reserved. Protected by copyright laws of the United States and international treaties. Any reproduction, copying, or redistribution (electronic or otherwise, including on the world wide web), of content from this website, in whole or in part, is strictly prohibited without the express written permission of Monument Street Publishing. 105 West Monument Street, Baltimore MD 21201, Email: customerservice@moneymorning.com

Disclaimer: Nothing published by Money Morning should be considered personalized investment advice. Although our employees may answer your general customer service questions, they are not licensed under securities laws to address your particular investment situation. No communication by our employees to you should be deemed as personalized investent advice. We expressly forbid our writers from having a financial interest in any security recommended to our readers. All of our employees and agents must wait 24 hours after on-line publication, or after the mailing of printed-only publication prior to following an initial recommendation. Any investments recommended by Money Morning should be made only after consulting with your investment advisor and only after reviewing the prospectus or financial statements of the company.

Money Morning Archive

© 2005-2022 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in