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February 05, 2015

Will cheap oil stall renewable energy?

Energy Investments
02.05.2015 User @ClimateGroup/Twitter

Solar energy prices have dropped significantly as the technology figures to assume a key role in the global energy mix of the future.

The massive drop in oil prices since July has been so astounding, and the industrial and consumer impact so great, that concerns could surface about the possibility of delays to crucial investments in renewable technology.

According to a Bloomberg report, however, there are seven key reasons that distinguish cheap oil and gas from the kinds of energy sources needed to drive cost efficiency on a larger scale. Companies will continue to invest in these clean-tech areas because getting sidetracked by the drop in fuel costs will not account for larger infrastructural energy demands. 

The report's number one reason why renewable growth will continue apace is that oil is for cars, while renewables are for electricity. Solar energy is more likely to compete with coal, nuclear, hydro and natural gas than oil. Although solar comprises less than 1 percent of the electricity market, it is projected by the International Energy Agency to become world's the biggest single source by 2050. 

Cheap electricity would pose a much bigger threat to solar energy than cheap oil, the report suggests. While plentiful natural gas has cut supplier costs enough to make power production inexpensive, the price of electricity bills continue to rise because transmission costs have required heavy investment in the grid that are absorbed by consumers. 

Another potential area of concern might be the progress of plug-in vehicles. Presumably, lower gas prices would cool down interest in electric vehicles. The Bloomberg report indicates, however, that studies have shown no relationship between gasoline prices and sales of electric vehicles. Other parts of the world with different regulations and taxes on energy consumption might provide an incentive for car-buyers to seek an electric vehicle. As affordable mass-market models become available, the early adopter phase for plug-ins may extend its reach. 

The history of oil prices suggests gas prices are unlikely to stay this low, as cuts in production bring supply into a new balance with demand. What will be interesting to watch is how advances in renewable technology take hold during the intervening period. At another point, this may have been considered a disaster for renewables, but oil's price drop instead presents an opportunity. 

For the complete list and further analysis, read the full article here