The belief that low oil prices will have no impact on renewable is very misguided and optimistically biased.\u00a0 The practical reality is the path of renewables will be altered with continued low oil prices.\u00a0\u00a0 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.\u00a0 It is a true statement that renewable generation is likely less costly than oil generation even at $50\/bbl.\u00a0\u00a0 However, in the power sector, the competition is not with oil directly but with natural gas and coal.<\/p>\n
The coal market benefits when oil prices are low as transportation can make up over 50% of the end cost of coal.\u00a0\u00a0 The natural gas markets may results in higher prices as economics of some oil field gets reduced, thereby, reducing the associated natural gas production.\u00a0 However, this may lead to more focus on natural gas finds versus oil finds increasing gas production.\u00a0 At best I think the impact of low oil prices on natural gas may only slightly increase gas prices.<\/p>\n
Given renewables connection to electric generation, the amount of renewable will be highly dependent on the amount of electric demand.\u00a0\u00a0 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.\u00a0 Therefore, one of the largest anticipated sources of electric demand in the future was going to come from electric vehicles.\u00a0\u00a0 However, with low oil prices, this makes the economics of mass electric vehicle adoption very unlikely.<\/p>\n
In most cases, the economic break-even of electric vehicles vs. gasoline vehicles requires gasoline prices north of $4\/gallon.\u00a0\u00a0 More likely it would be north of $5\/gallon given most\u00a0of these economic analysis were based on a huge advantage of gasoline vehicles paying for the road infrastructure.\u00a0\u00a0 This is unsustainable once EV vehicles grow in usage \u2013 eventually the road tax will be collected from EV vehicles. \u00a0Nonetheless $4+\/gallon prices are now diminishing in probability as oil price remain below $100\/bbl. \u00a0With low oil prices, this transition to electric vehicles will be limited.\u00a0\u00a0 In order to transition, a much larger carbon price will be needed which will not likely be politically sustainable.\u00a0 The sacrifice for saving a potential disaster may just be too high for society.<\/p>\n
Low oil prices will limit the ability for renewables to grow in the energy mix.\u00a0 The portability of energy is superior in petroleum products relative to any other forms of energy including batteries.\u00a0\u00a0 This physical attribute of petroleum will require a monetary mechanism to allow a switch to greater renewable forms of energy.\u00a0\u00a0 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.\u00a0\u00a0 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.<\/p>\n
The energy markets are intertwined.\u00a0\u00a0 High oil prices lead to greater opportunities for change.\u00a0\u00a0 A low oil price supports the status quo.\u00a0 Renewables can continue to grow with current societal goals within the power sector \u2013 but the potential will be so much less now than when oil was north of $100\/bbl.<\/p>\n
Your All Forms of Energy Analyst,<\/p>\n
David<\/p>\n
David K. Bellman
\nFounder\/Principal
\nAll Energy Consulting LLC- “Adding insights to the energy markets for your success.\u201d
\n614-356-0484
\ndkb@allenergyconsulting.com
\n<\/a>@AECDKB<\/p>\n