Renewables No Impact with Low Oil Price – False

Renewables No Impact with Low Oil Price – False

The belief that low oil prices will have no impact on renewable is very misguided and optimistically biased.  The practical reality is the path of renewables will be altered with continued low oil prices.   Many of those focused on renewables, having nothing to do with oil, are focused on the power sector being isolated from the rest of the world.  It is a true statement that renewable generation is likely less costly than oil generation even at $50/bbl.   However, in the power sector, the competition is not with oil directly but with natural gas and coal.

The coal market benefits when oil prices are low as transportation can make up over 50% of the end cost of coal.   The natural gas markets may results in higher prices as economics of some oil field gets reduced, thereby, reducing the associated natural gas production.  However, this may lead to more focus on natural gas finds versus oil finds increasing gas production.  At best I think the impact of low oil prices on natural gas may only slightly increase gas prices.

Given renewables connection to electric generation, the amount of renewable will be highly dependent on the amount of electric demand.   Also one of the largest mechanisms to de-carbonize came from the conversion of vehicles to electric vehicle as renewable generation offered a potential zero carbon source.  Therefore, one of the largest anticipated sources of electric demand in the future was going to come from electric vehicles.   However, with low oil prices, this makes the economics of mass electric vehicle adoption very unlikely.

In most cases, the economic break-even of electric vehicles vs. gasoline vehicles requires gasoline prices north of $4/gallon.   More likely it would be north of $5/gallon given most of these economic analysis were based on a huge advantage of gasoline vehicles paying for the road infrastructure.   This is unsustainable once EV vehicles grow in usage – eventually the road tax will be collected from EV vehicles.  Nonetheless $4+/gallon prices are now diminishing in probability as oil price remain below $100/bbl.  With low oil prices, this transition to electric vehicles will be limited.   In order to transition, a much larger carbon price will be needed which will not likely be politically sustainable.  The sacrifice for saving a potential disaster may just be too high for society.

Low oil prices will limit the ability for renewables to grow in the energy mix.  The portability of energy is superior in petroleum products relative to any other forms of energy including batteries.   This physical attribute of petroleum will require a monetary mechanism to allow a switch to greater renewable forms of energy.   A rising crude oil price with transportation north of $4/gallon, and with an expected small impact of carbon allowed many to discuss the potential of a zero carbon system.   However, with the recent changes in oil prices and potentially a protracted time period below the $100/bbl mark, many dreams of the zero-carbon world are likely shattered.

The energy markets are intertwined.   High oil prices lead to greater opportunities for change.   A low oil price supports the status quo.  Renewables can continue to grow with current societal goals within the power sector – but the potential will be so much less now than when oil was north of $100/bbl.

Your All Forms of Energy Analyst,

David

David K. Bellman
Founder/Principal
All Energy Consulting LLC- “Adding insights to the energy markets for your success.”
614-356-0484
dkb@allenergyconsulting.com
@AECDKB

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