Renewables sector says industry will not suffer from oil price drop

The UK’s renewables sector has reacted to suggestions that the sector may suffer inadvertently from the ongoing drop in oil price.

Last week the Independent newspaper carried an article on how the oil price drop was affecting the UK economy and asserted it to be ‘further bad news for Britain’s green energy sector, which is already reeling after dramatic cuts to subsidy support for solar power and onshore wind.’

 The article went on to state, “The oil price slump – which looks set to continue for years – makes things worse because it makes oil, and therefore gas, a more attractive electricity source for power stations while solar, wind and hydro become less attractive. This is a particular blow when you consider that before the oil price slump, the green energy sector had been banking on a sharp rise in hydrocarbon prices, rather than an acute decline.”

 However industry chiefs are keen to dismiss the notion that oil’s predicament presents difficulty for their sector.

 Paul Barwell of the Solar Trade Association told Power Engineering International, “Five years ago it might have been much more problematic but renewables are still on a cost reduction trajectory and we think by 2017 or 2018 solar and onshore wind which are the joint cheapest technologies for generating energy will be at the same level as gas for generating electricity.”

“So in terms of marginal cost why would you be building up gas powered generation now when you can build large scale solar and wind farms – the answer to that is that it is because its more political around how policy procedures are set up.”

Mr Barwell pointed to another recent article in the Guardian newspaper, which has a polar opposite opinion, the thrust being that oil prices drive green energy take up in top exporting nations.

He said those oil producing nations know there is an ‘end game’ in terms of fossil fuel demand, know they need to diversify, and are hence investing in renewables.

“I used to trade oil for various banks for 15 years so I’ve got a reasonable understanding of the way the market works from a supply demand and derivatives trading perspective,” he told Power Engineering International.

“The market often talks about the peak supply, with wells running dry, but what people should be thinking about is peak demand and we aren’t going to be hitting peak demand at any point in time. People are switching off from fossil fuels and moving on to nuclear and more likely renewables, particularly in China and India where we are seeing a huge transition.”

The Independent’s report failed to take into account the bigger picture, according to Barwell who says oil could be set for a further bleak outlook as research and development becomes more uneconomical, due to the declining price.

“It’s not unreasonable to assume the oil price could recover because of supply and demand but in the meantime volatility is a very unfriendly beast for an energy user because you have complete uncertainty all the time, whether high price or low. Whereas with renewable energy it’s a fixed price source in terms of what’s being provided on the grid and a very much low cost – you also have to take into account the momentum provided by the recent successful COP21 agreement in Paris.”

On the contrary he says the current deflationary period might see more consumers use their extra disposable income to invest in renewables.

He said the Independent article appeared to be based solely on an immediate, economic perspective and also referred to disconnect between oil and gas prices not reflected in the piece.

“The oil price has dropped by $140 a barrel down to $30 but the gas price hasn’t fallen by anything like that same proportion.”

“There are many other factor that are just being missed out - the merit order effect in that renewables are already lowering the electricity price irrespective of what is going on with the world’s fuel prices,  the disincentive for the fossil fuel companies to invest in further extraction of oil meaning a reduction in supply in years to come, the general way people are switching away from the idea of fossil fuels, the Paris effect, electrical vehicle storage and the significant expansion of renewables globally.”

“Generators are aware of the end game. Saying don’t bother with the renewables; you can just have cheap oil and cheap gas doesn’t do anything to save the environment so we are seeing quite a significant transition.”

Elsewhere Oliver Joy of the European Wind Energy Association shared the positive perspective on the current status of the renewables sector.

“In China, gas is still more expensive than onshore wind. Only in the US might you see gas cheaper than onshore wind at this time but that is a unique situation following a boom in domestic production.”

 “According to Bloomberg New Energy Finance, 2015 saw a record year for clean energy investments of $329bn and that was in a year of low oil prices so the impact is very limited. However, it is an opportunity for policymakers to take stock and work towards reducing Europe’s reliance on fossil fuel imports – a bill to the tune of €400bn each year.”

Joy added that by 2030 it was his belief that should policymakers act, wind could deliver nearly a quarter of the continent’s electricity.


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