March 4, 2015    3 minute read

Renewable Energy Blown Over By Cheap Oil?

   March 4, 2015    3 minute read

Renewable Energy Blown Over By Cheap Oil?

The huge fall in oil prices has been a blessing for most consumers, with energy firms around the world passing on savings to customers. Two weeks ago, for instance, Power NI just cut its prices in Northern Ireland by almost 10%. But are we overlooking the negative effects of cheap oil on the trends towards a greener society? In the US in the 1980s and 90s, a similar oil price shock stopped a surge in the fledgling renewables industry. So will history be repeated?

Green giants not threatened

If we take a look at some of the largest wind turbine producers like Siemens and Vestas it becomes obvious that since the beginning of December, renewables firms are thriving and in fact at 3 month highs. One theory put forward to explain this is government green energy requirements. If companies and institutions are forced to generate and use a certain proportion of green energy sources then their demand is inelastic, ensuring that any change in its relative cost will have a minimal effect on the amount of green technology demanded. That being said, unless these green requirements increase there will be less incentive for firms to develop more efficient renewable energy technology. Some researchers believe that the market is looking beyond the short-term effects of the oil-price crash. Analysts from Bernstein Research point out the fact that:

“Renewable energy is a technology. In the technology sector, costs always go down. Fossil fuels are extracted. In extractive industries, costs [almost] always go up”

The market may still believe that the development of green technology will provide better returns in the long-run than the perceived unsustainable oil industry.

Is regulation holding up the industry?

Some proponents of renewable energy argue that solar and wind can continue to compete with oil, even at its incredibly low price. While fossil fuelled power stations are cheaper to set up, solar panels and wind turbines run on completely free resources and are much less expensive in the long run. Previously the inefficiency of green technology had made these alternatives unattractive but over the past 30 years solar panel efficiency has grown by up to 46%.

It is also worth noting that the US renewables boom in the late 20th Century was born out of a desire for the country to become more energy independent. Falling oil production, the 1973 OPEC oil embargo, and 1979 Iranian Revolution had led the US to feel increasingly vulnerable with regard to oil supplies. American entrepreneurs and scientists viewed the shortages as an opportunity rather than a challenge, furthering research into solar and wind power to cover gaps in the energy market. When the shortages subsided and the prices dropped this industry was replaced by conventional fossil fuels once again.

Overall, renewable energy has been seemingly unaffected from the oil price drop. Although environmentalists may dislike the smaller incentives to switch away from polluting fuels in the short run, they will certainly not be disappointed with the current infeasibility of fracking or the steady growth of green energy.

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