What does cheap oil mean for renewables?

18th December, 2008 by admin

Inside views from the green energy sector on oil price volatility

Oil up at nearly $150 a barrel? Just half a year ago that was the new reality. It surely spelled death for the gas-guzzler – and a place in the sun for alternative energy supplies. Cleantech seemed set to ride out the credit crunch. Efficiency and the renewables industry were poster boys.

Oil down at under $50 a barrel? All changed now?

Green Futures has been taking soundings at the sharp end – asking leading figures in the UK renewables sector if the oil price dip is hurting them.

Not necessarily us, says Jeremy Leggett, founder and chief exec of photovoltaics company Solarcentury. He does, however, see it as “an aberration driven by speculation”, and believes there’s a need to “restructure financial markets so they aren’t casinos capable of ruining us”.

Fortunately, he says, in his own business “we’re not that short-term. We benefit from being much more long-term funded, with key drivers being trends in corporate responsibility and the climate change agenda.”

If that sounds complacent, it shouldn’t. Leggett is a prominent voice in the ‘peak oil’ argument, warning of impending chaos when the oil market, blind to the
fundamentals of declining supply and rising demand, suddenly realises that the world has less than half of the viable oil left. “It is terribly worrying and disruptive that the system is so severely broken, it cannot sustain an oil
price consistently above the marginal costs of production.”

He points out, however, that “if you draw a straight line through the wild fluctuations in the oil price, it still shows a pretty substantial increase since 2004”. And wholesale prices for gas, for electricity, remain relatively high. So he sees it as “inevitable” that the oil price will go back up again. “I am as confident of this as one can be in these crazy times. And if you had to pick one business to be in, it would be cleantech.”

Dale Vince, the ebullient head of wind power specialists Ecotricity, is blunter. “We’re impervious to the price of oil,” he says. “We’re putting up turbines flat out, and neither a high oil price scenario nor a low one makes any difference to that.” There’s even a silver lining. “It’s not as simple as ‘high oil good, low oil bad’.” When oil prices soared, along with those of other resources such as steel, there was a global capacity problem for wind turbines, Vince recalls. “Now, the drop in demand, and the falling cost of manufacturing them, means they may actually get cheaper over the next year.”

Cheap oil at present might deter investment in wind by those who are purely financially driven, he concedes. But “because we are here for different reasons, it won’t make any difference to us, unless our business actually becomes uneconomic – and we’re a long way away from that.”

At Good Energy, Juliet Davenport needs to source all the green electricity she can for her customers. Like Leggett, she worries about the oil price issue as a volatility problem – with the latest big dip affecting the investment behaviour of “people who can only understand a short-term view”. This does make some of the smallest renewables projects harder to get off the ground, she says – but most are still very viable. “In the longer term, where are you going to put your money? There’s a massive need to invest in the energy market. Risk is the main driver now, and it’s a very plausible proposition that stability is in renewables.”

If she’s right, it’s quite a reflection on what a long way the sector has come. – Roger East

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Tim Haines, Director, Development of International Business