Environmentally friendly energy products and technologies, even those based on photovoltaic solar cells, will need to produce energy that is competitively priced in a market where oil costs as little as $30 per barrel.
30th May 2006. Cambridge, UK: Recent turmoil in the commodity markets illustrates just how vulnerable the renewable energy sector is to any easing of oil prices. According to Cambridge UK analysts CarbonFree, environmentally friendly energy products and technologies, even those based on photovoltaic solar cells, will need to produce energy that is competitively priced in a market where oil costs as little as $30 per barrel. At this price, renewable energy produced on either a large or small scale will gain traction and may eventually displace fossil fuels as a primary energy source.
During the last two years the market for renewable energy technology has been driven by two key factors: concerns that the burning of fossil fuels contributes to global warming, and rising domestic fuel bills. Fears over spiralling energy costs have caused a degree of investment overshoot. Based on long term projections of rapidly rising energy prices householders approaching retirement saw a time when they could no longer afford to heat their homes. For them especially purchasing a small-scale renewable energy system seemed an ideal long-term investment.
As oil prices ease, the incentive to invest in renewable energy technology is reduced. The overshoot that inflated the market for renewable energy is replaced by a second overshoot based on anticipated energy price reductions. Eventually this negative sentiment will impact on the renewable energy sector.
Heavily exposed in the current investment climate are hedge funds that are using the renewable energy sector to offset risks in markets depressed by rising oil prices. While industry in general may benefit from a lower oil price this may not compensate for a heavily funded renewable energy sector that comes to a dead stop - as the dot com sector did in 2002. Even more vulnerable are investors who have taken long-term positions in the polysilicon market in the expectation that both semiconductor and photovoltaic solar manufacturers will compete for the same limited supplies.
Currently most photovoltaic solar systems are only economic if heavily supported by grants paid to householders, building developers and power generators. CarbonFree predict a shift in the market when innovations such as thin film and nanotechonology-based photovoltaics replace the current generation of devices. Longer-term it sees technology that uses the sun's energy to split water into oxygen and hydrogen having a significant impact on the energy market.
CarbonFree notes that the small-scale wind technology sector is coming tantalisingly close to reaching critical mass - in part due to the significant media coverage the technology is receiving. Again, the price of the technology is a critical factor for the householder as presently the payback period for equipment exceeds the time a typical householder resides in a particular property. However, some retail outlets have identified a potentially large market for wind power based microgeneration and are attempting to source low-cost roof top turbines to sell in their stores. This should both drive down unit prices and increase the credibility of wind technology in the domestic energy supply market.
CarbonFree have produced reports that examine both large-scale and small-scale renewable energy generation markets and see both becoming realistic propositions if the technology can produce energy at the right price. The reports see both sectors remaining resilient if energy derived from renewable sources remains competitive in an energy market where oil is available for $30 per barrel. The reports describe technologies and scenarios that would make this possible. At $30 per barrel of oil equivalent, given that renewable energy is cleaner for the consumer and has less environmental impact than burning fossil fuels, CarbonFree predicts that renewables would eventually displace most other incumbent energy sources.
Both reports "Farming Renewable Energy" and "Householders As Energy Providers" are available as part of CarbonFree's report subscription service. http://www.carbonfree.co.uk
CarbonFree carries out research and analysis in a wide range of alternative energy related fields and disseminates results in its highly focussed CarbonFree reports.