Why Cheap Oil Can’t Kill Renewables

February 16, 2015


Longer piece, deserves a look at the link.  More evidence that the violent gyrations of the fossil fuel prices are more than just volatility. We are observing a global paradigm shift.

Bloomberg Business:

1. The Sun Doesn’t Compete With Oil

Oil is for cars; renewables are for electricity. The two don’t really compete. Oil is just too expensive to power the grid, even with prices well below $50 a barrel.

Instead, solar competes with coal, natural gas, hydro, and nuclear power. Solar, the newest to the mix, makes up less than 1 percent of the electricity market today but will be the world’s biggest single source by 2050, according to the International Energy Agency. Demand is so strong that the biggest limit to installations this year may be the availability of panels.

“You couldn’t kill solar now if you wanted to,” says Jenny Chase, the lead solar analyst with Bloomberg New Energy Finance in London.

2. Electricity Prices Are Still Going Up

The real threat to renewables isn’t cheap oil; it’s cheap electricity. In the U.S., abundant natural gas has made power production exceedingly inexpensive. So why are electricity bills still going up?

Fuel isn’t the only component of the electricity bill. Consumers also pay to get the electricity from power plant to home. In recent years, those costs have soared. Annual investments in the grid increased fourfold since 1980, to $27 billion in 2010, according to a report by Deutsche Bank analyst Vishal Shah. That’s driving bills higher and making rooftop solar attractive.


3. Solar Prices Are Still Going Down

You may have seen this chart before. It’s the most important chart. It shows the reason solar will soon dominate: It’s a technology, not a fuel. As time passes, the efficiency of solar power increases and prices fall. Michael Park, an analyst at Sanford C. Bernstein, has a term for the staggering price relationship between solar and fossil fuels: the Terrordome.

The chart above shows the price of energy from different sources since the late 1940s. The extreme outlier is solar, which only recently entered the marketplace, at a very high price. Prices are falling so fast that solar will soon undercut even the cheapest fossil fuels, coal and natural gas. In the few places oil and solar compete directly, oil doesn’t stand a chance.

Case in point: Oil-rich Dubai just tripled its solar target for the year 2030, to 15 percent of the country’s total power capacity. Dubai’s government-owned utility this week awarded a $330 million contract for a solar plant that will sell some of the cheapest electricity in the world.


4. Sales of Plug-Ins Are Doing Just Fine, Actually

Conventional wisdom says cheap oil is an existential threat to electric vehicles. It’s been true in the past, notably when Congress retreated from funding EV research in the 1980s as oil prices tanked. Things are different now, and global sales of plug-ins rose by about a third last year, according to BNEF.

Here’s why cheap oil won’t stop electric vehicles:

  1. Since 2010 there’s been no relationship between gasoline price and electric vehicle sales, according to BNEF analyst Alejandro Zamorano Cadavid. Electric cars are still in the early-adopter phase, and someone paying $100,000 for a Tesla doesn’t care that gasoline costs a buck less per gallon.
  2. In Europe, gas taxes are so high that it makes the price of crude less important. If you’re in Norway, and gas drops from $10 a gallon to $9 a gallon, electric cars are still a deal.
  3. In China, the government is stepping up support for electric vehicles. Pollution has become a serious problem, and the Chinese are getting serious about fixing it. Plug-in sales are soaring.

Electric vehicles are moving like a Tesla: quietly, but with great acceleration. Let’s bookmark this conversation for two years from now, when Chevy and Tesla plan to release the first affordable mass-market plug-ins with a range of 200+ miles per charge. At that point, the price of fuel might be a real consideration for car buyers, and at that point it’s more likely to tip the scales toward EVs, not away from them.

8 Responses to “Why Cheap Oil Can’t Kill Renewables”

  1. Gingerbaker Says:

    “Annual investments in the grid increased fourfold since 1980, to $27 billion in 2010, according to a report by Deutsche Bank analyst Vishal Shah. ”

    $27 billion seems like a lot, but it is 1/57th of our annual fossil fuel expenditures, to put it into perspective. And how much of that $27 billion is wasted, or at least not money well spent? It is not buying us a smart grid. It may not be being spent in a coordinated coherent fashion with an eye to the future, for all I know. This may be like spending thousands every year on an old car, keeping stupid, old infrastructure going with very little of lasting value to show for it at the end. Who knows?

    I have never seen an article addressing that issue. How much of our current grid needs to be replaced to make what we all agree we need – a new smart grid?

    Incredible, isn’t it? Twenty-five years of intense discussion of global warming. And still (as far as I can tell – I may be really off-base here) no discussions about planning, about strategy for construction, about public ownership of our national natural resources (our sun, wind, tide).

  2. andrewfez Says:

    I still think the Volt model is the best transition vehicle to get people to go from gas to electric. Most of your daily stuff is done in electric mode; vacations or exceptions are done in gas/hybrid mode; and if you forget to plug in one night, the gas hybrid mode has your back.

    It’s a gateway car. It teaches you to change your behavior regarding plugging in. But it isn’t limited by the shortcomings of a purely electric vehicle (long charge times). It comfortably facilitates a behavioral change, and that of our perceptions of personal transport.

    I wish they would make a Toyota Camry that worked by the Volt model; that is the quality and indestructibility of a Toyota, combined with the Volt’s tech.

    • Phillip Shaw Says:

      Why do you feel the Volt is superior to other hybrid cars, either plug-in or conventional hybrid? All of the attributes you list for the Volt are equally true of other plug-in hybrids.

      • andrewfez Says:

        When I said ‘Volt model’, I meant plug-in hybrid model or design, not that specific car model. But the Volt’s battery is only like 40 miles of range, which means the battery charges faster than a 200 mile range battery; that may or may not be beneficial to the battery life – getting full cycles out of a quick plug-up (as opposed to only charging a 200 miles vehicle to the 100 mile mark, say, half the time).

        The plain hybrids, where you can’t plug in, are OK. But the more battery powered stuff out there, the quicker smart grid integration of EV’s can happen.

        • petersjazz Says:

          Only problem with hybrid is maintenance. You have to maintain electric and gas engine. An electric car is easier to build and maintain, fewer things that can go wrong. Lets hope batteries will improve and get cheeper, then this is no problem.

  3. John Says:

    Reblogged this on jpratt27.

  4. […] posted several times about the current oil price situation, and the increasing suspicion among seasoned observers that what we are seeing now is more than just the latest market […]

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