With violence raging in the streets of Libya and turmoil
across the Arab world from Tunisia to Oman rattling oil markets,
and with Brent crude at its highest price in two years,
renewable energy companies would seem poised to cash in on fears
about security of energy supplies.
Ever since the 1970s oil embargo, which provided the catalyst
for initial efforts in the United States and Europe to develop
wind, solar and other renewables technologies, many analysts
have assumed that oil-price increases make renewables more
competitive with conventional fuels.
But wait: the oil price increases of 2008 are widely blamed for
producing a slump in the US economy that made it harder for
low-income consumers to repay their mortgages, touching off the
mortgage-banking crisis that forced some of the world's largest
financial institutions to seek government bailouts.
The resulting worldwide economic slump hit the renewables
industry hard, as banks began refusing to make loans to
large-scale clean-energy plants like offshore wind farms. Though
renewable energy projects gained some short-term relief from
government stimulus spending, many governments -- deeply in debt
from helping millions of unemployed over the past two years --
now have begun to slash funding for renewables support programs.
Even with the banking crisis apparently passed, rising oil
prices are seen as both an indicator of economic rebound -- as
businesses that are growing use more energy -- and as a
potential recovery-killer if prices increase too much.
Where does that leave the renewables industry? In a paradox:
Rising oil prices would seem to make renewable energy more
attractive, but big price jumps -- which, at first glance,
should make the industry still more competitive -- also dampen
the economic growth on which renewables developers depend.
The link between crude oil prices and renewables growth might
have been severed once and for all. As American Wind Energy
Association head Denise Bode has noted, wind power's chief
competitor is now natural gas, and though oil and gas prices
have long been associated, they don't necessarily rise and fall
in perfect tandem.
More important, natural gas and renewable resources -- aside
from biomass used to make biofuels -- are used almost
exclusively to generate electricity and heat, while oil is
refined largely to power vehicles and produce petrochemicals.
Perhaps the starting point for discussions of renewables'
competitiveness, then, should be natural gas prices.
Costs for deploying renewables do continue to fall. Prices for
solar photovoltaic equipment, for example, have dropped
dramatically in recent years. The International Energy Agency
estimates that with strong national support policies, PV could
achieve grid parity -- making solar energy no more expensive
than electricity from conventional fuels -- in many areas by
2020.
Wind energy costs are dropping as well, with wind power nearly
on par with natural gas prices in some markets and utilities
lining up wind-power generation for 20 years or more as a hedge
against volatile conventional fuel prices.
At the same time, policy-makers are reassessing subsidies that
fossil fuels have enjoyed for decades, creating a more level
energy playing field (IEA puts the cost of fossil-fuel subsidies
for power generation worldwide in 2009 at $312 billion, compared
with $37 billion in subsidies for renewables).
As these market forces and policy reforms take hold, the
question of renewables' competitiveness compared with
conventional fuels might be moot within a decade.
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