Crude oil prices have dropped to their lowest levels for six years, at under $50 a barrel. If they stay low throughout 2015 then it will cause headaches for the wind sector.
This is one of the findings of our latest report, Wind Finance 2015.
There are many reasons why oil prices have crashed, including the parlous state of the eurozone; slowing growth in China; and the decision by the Organization of Petroleum Exporting Countries to maintain high levels of production to put pressure on rivals, including fracking and renewables.
The major risk for wind investors is that prolonged low oil prices will make it cheaper for traditional power stations to generate electricity, and this will push down energy prices. This would make wind less able to compete with fossil fuels. Billionaire Richard Branson is among those warning about this, and it would undoubtedly put off some companies from investing in wind farms.
Such changes would also increase pressure on politicians to cut support for wind, which critics say is uneconomical. We have already seen the disastrous effects on investor confidence of scrapping financial support on markets including Australia, Spain and the U.S. In contrast, Germany showed last year how to reduce subsidies for wind while also maintaining investor confidence.
Extra pressure on governments to cut support must be a concern for wind — although such cuts are far from certain. Most countries will continue to have stable policies to tackle climate change and increase the proportion of renewables in the energy mix. For wind businesses, the focus must remain on reducing the costs of their projects in order to improve the economic case for wind.
And we also shouldn’t get too negative. There is a good chance that crude oil prices will rebound in the second half of 2015 and, whatever happens, we do not expect nations around the world to turn their backs on clean energy. Cheap crude oil doesn’t change the fact that fossil fuels are finite and environmentally damaging. Cost isn’t the biggest concern for nations who are backing wind.
For these reasons, wind will continue to be an important part of a balanced global energy supply.
To read the entire Wind Finance 2015 report, visit www.awordaboutwind.com and sign up for a free one-month trial. The first ten people to sign up and then email the team at email@example.com will receive a complimentary copy of the report.
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