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Regardless of oil prices, alternatives on the rise

March 23, 2015

Wall Street's reaction to the precipitous drop in oil prices over the past six months is it’s a mixed blessing. Cheap energy equates to lower-cost manufacturing and transport (good for business), however it also means depressed oil, gas and coal company stocks (bad for investors).

 

But a different concern is felt among progressives in the energy community: Do cheap fossil fuels slow development in renewables?

 

Time will tell, of course. But what appears to be counterintuitive is the robust growth in renewable energy, even after the halving oil prices since June 2014. By December of 2014, more solar and wind capacity was added in the U.S. than in any previous year. Since 2008, wind and solar energy capacity has tripled. And according to the U.S. Energy Information Administration, new capacity from solar and wind added in 2014 was larger than increases from coal, gas and oil. And there's little to indicate a curtailment in 2015.

 

There’s still quite a ways to go before wind, solar, nuclear and newer technologies even come close to providing the amount of energy generated by the traditional sources. But I believe there are several reasons why we might see continued growth in renewables seemingly regardless of the price of oil:

 

More pure economic calculations – A fundamental principle of economics is rational thought. Pro-renewables people like me have for decades questioned the continued reliance on fossil fuels, which has become increasingly expensive, volatile, subject to geopolitical disruptions and the driver of costs throughout the economy. In the short run, a shift to renewables might involve upfront costs; over the long term, renewable energy in many applications can be extremely cost-effective. Key to economic fundamentals is how we are increasingly looking at the coming decades instead of simply the next financial quarter.

 

Development of legal and financial instruments – While working on several assignments, I’ve been struck by the ways in which lawyers and lenders are enabling the installation of solar energy on homes and businesses. Solar and wind installations are expedited when attorneys and the financial sector develop contracts and other tools (such as power purchase agreements, PPAs) to navigate regulatory matters, permitting, incorporation, land use, intellectual property, insurance and the shortening return on investment time periods.

 

Increasingly smarter siting and installation methods – Sophisticated application of wind power density (WPD) calculations of various locations enables optimal siting of wind farms, such as this one near the Anacacho mountain range in west Texas that I profiled for American Builders Quarterly magazine earlier this year. The concentration of wind in the Plains States, from Texas through North Dakota, has led to a remarkable growth in wind capacity there, despite some remote locations (note: emerging transmission and storage technologies will make these sites even more productive).

 

Storage capacity – This is a hotbed of renewable energy research, with some betting on lithium ion batteries, others vanadium-based flow (advantageous because vanadium can be sustainably extracted from waste sources including fly ash and mining slag), among others.  Smart grids, a complementary area of research and development, further enhance the consumption and redistribution of energy between peak and low demand time periods. Deutsche Bank is telling investors that by its own analyses that various factors including advancement in storage capacity now drive solar to beat coal globally in cost effectiveness and that by 2020 commercial-scale storage will become mainstream.

 

Cultural and marketing advantages – The costs of its extraction, transport, refining and post-use emissions are currently socialized (i.e., borne not by producers but our shared environment and healthcare systems). This is well understood in the green crowd and increasingly in the mainstream. People want to be green, to use renewable energy, and to engage in conservation, particularly with their homes and cars. Younger people with a greater stake in the future and deeper education in climate and environmental issues are pushing the agenda at the polls and in the marketplace.

 

But not everyone is on board. What’s running counter to this trend is the departure from renewables development by traditional fossil fuel companies. I profiled British Petroleum’s (BP) wind business in 2012, which then was an $8 billion investment. But that division is now for sale (BP's solar program was ended in 2011), while Chevron, Shell and other majors are dropping out as well. Various reasons are cited for this: a need to focus on the troubled core oil business, a failure to achieve ROI within their investors’ expectations, shifting regulatory programs and uncertain tax incentives in the U.S.

 

From this, we can only conclude that fossil fuel companies are at best marginally interested in renewable energy. As the most profitable industry in the world, with all the political and economic clout that that brings, it may be possible to ignore the growth/threat of alternatives. As they have for decades.

 

So be it. I’m just glad there are so many other forces driving the adoption of carbonless energy. Call me an economic long-termer.

 

Russ Klettke is a general business writer with strong interests in environmental progress; he frequently writes for Green Building & Design and American Builders Quarterly magazines. Contact him to discuss your communications needs.

 

Photo: Apple buys power from multiple large-scale solar farms, such as this one in Maiden, NC. The advancements in solar are on both commercial and utility scales, however individual businesses and homeowners are also a big part of the growth in solar. Wind energy is udnergoing rapid growth but is largely the province of commercial operators.

 

 

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Russ Klettke

Business Writer