Renewable Energy Must Be Competitive With Oil At $30 A Barrel
30th May 2006. Cambridge, UK: Recent turmoil in the commodity markets
illustrates just how vulnerable the renewable energy sector is to any easing
of oil prices.
According to Cambridge UK analysts CarbonFree,environmentally friendly energy products and technologies, even those
based on photovoltaic solar cells, will need to produce energy that is competitively priced in a market where oil costs
as little as $30 per barrel. At this price, renewable energy produced on either a large or small scale will gain
traction and may eventually displace fossil fuels as a primary energy source.
During the last two years the market for renewable energy technology has
been driven by two key factors: concerns that the burning of fossil fuels
contributes to global warming, and rising domestic fuel bills. Fears over
spiralling energy costs have caused a degree of investment overshoot. Based
on long term projections of rapidly rising energy prices householders
approaching retirement saw a time when they could no longer afford to heat
their homes. For them especially purchasing a small-scale renewable energy
system seemed an ideal long-term investment.
As oil prices ease, the incentive to invest in renewable energy technology
is reduced. The overshoot that inflated the market for renewable energy is
replaced by a second overshoot based on anticipated energy price reductions.
Eventually this negative sentiment will impact on the renewable energy
sector.
Heavily exposed in the current investment climate are hedge funds that are
using the renewable energy sector to offset risks in markets depressed by
rising oil prices. While industry in general may benefit from a lower oil
price this may not compensate for a heavily funded renewable energy sector
that comes to a dead stop – as the dot com sector did in 2002. Even more
vulnerable are investors who have taken long-term positions in the
polysilicon market in the expectation that both semiconductor and
photovoltaic solar manufacturers will compete for the same limited supplies.
Currently most photovoltaic solar systems are only economic if heavily
supported by grants paid to householders, building developers and power
generators. CarbonFree predict a shift in the market when innovations such
as thin film and nanotechonology-based photovoltaics replace the current
generation of devices. Longer-term it sees technology that uses the sun’s
energy to split water into oxygen and hydrogen having a significant impact
on the energy market.
CarbonFree notes that the small-scale wind technology sector is coming
tantalisingly close to reaching critical mass – in part due to the
significant media coverage the technology is receiving. Again, the price of
the technology is a critical factor for the householder as presently the
payback period for equipment exceeds the time a typical householder resides
in a particular property. However, some retail outlets have identified a
potentially large market for wind power based microgeneration and are
attempting to source low-cost roof top turbines to sell in their stores.
This should both drive down unit prices and increase the credibility of wind
technology in the domestic energy supply market.
CarbonFree have produced reports that examine both large-scale and
small-scale renewable energy generation markets and see both becoming
realistic propositions if the technology can produce energy at the right
price. The reports see both sectors remaining resilient if energy derived
from renewable sources remains competitive in an energy market where oil is
available for $30 per barrel. The reports describe technologies and
scenarios that would make this possible. At $30 per barrel of oil
equivalent, given that renewable energy is cleaner for the consumer and has
less environmental impact than burning fossil fuels, CarbonFree predicts
that renewables would eventually displace most other incumbent energy
sources.
Both reports “Farming Renewable Energy” and “Householders As Energy
Providers” are available as part of CarbonFree’s report subscription
service. http://www.carbonfree.co.uk
About CarbonFree
CarbonFree carries out research and analysis in a wide range of alternative
energy related fields and disseminates results in its highly focussed
CarbonFree reports.
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