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One might imagine that the sudden drop in the oil price is turning the energy industry upside down. And, indeed, in some sectors, it is. For instance, in North America, the number of operational oil rigs has gone off a cliff-edge.

But what about renewable energy? Five years ago, the reverse oil shock might have resulted in a crisis of confidence. Today, it’s a different story, as Tom Randall explains in a fascinating article for Bloomberg.

The first reason for the resilience of renewables is a pretty basic, though often overlooked, factor:

“Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.

“Instead, solar competes with coal, natural gas, hydro, and nuclear power. Solar, the newest to the mix, makes up less than 1 percent of the electricity market today but will be the world’s biggest single source by 2050, according to the International Energy Agency. Demand is so strong that the biggest limit to installations this year may be the availability of panels.”

Then there’s a change in the economics of energy that’s more impressive than anything that’s happened to oil lately – i.e. the spectacular fall in the cost of solar power. 

The article features a graph comparing the price of different forms of energy since 1949. We see four lines for oil, coal, pipeline gas and LNG (liquified natural gas) peaking and troughing over the decades. Then, in the first decade of the 21st century, a fifth line is introduced for solar power. This starts at a level far above the others, but in the space of a few years it streaks downward like a bolt of lightning:

“Prices are falling so fast that solar will soon undercut even the cheapest fossil fuels, coal and natural gas. In the few places oil and solar compete directly, oil doesn’t stand a chance.

“Case in point: Oil-rich Dubai just tripled its solar target for the year 2030, to 15 percent of the country’s total power capacity.”

Dubai has recently set a record low price for solar energy – with a new project supplying electricity at just 5.98 cents per kilowatt hour. Obviously this is in a sunny part of the world, but any form of energy capable of outcompeting gas-fired power in the Middle East is of global significance.

Of course, there is one part of the clean technology sector where the oil price is of direct relevance – electric vehicles. Surely, there’s no getting away for these green machines.

Except that there is:

“Since 2010 there’s been no relationship between gasoline price and electric vehicle sales… Electric cars are still in the early-adopter phase, and someone paying $100,000 for a Tesla doesn’t care that gasoline costs a buck less per gallon.”

Due to fuel taxes in some parts of the world and fuel subsidies in others, petrol prices aren’t always closely related to oil prices – especially with governments using the fall in the latter to make changes to the former:

“…a number of countries, including India and Indonesia, have used the price drop as cover to cut gasoline subsidies that were weighing down their budgets. Second, countries that include China have pocketed the savings from cheaper oil by increasing gasoline taxes to make up the difference.”

Finally, the author reminds us that oil prices aren’t necessarily staying down. Unlike properly functioning markets, the oil market isn’t primarily a competition to make a better, cheaper product, rather it’s about exploiting control over a finite resource.

While we can’t predict the next move in the great oil game, we can have confidence that that clean energy technologies will become more affordable over time – because fundamentally what they’re powered by isn’t the sun or the wind, but the best of human ingenuity.

30 comments for: Never mind the oil price, renewable energy is still the future

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