As global oil prices hit a five-year low, the fossil fuel industry is facing a gathering storm that could spell great news for the solar power industry.
Some analysts had suggested that cheaper oil could initially cause problems for the solar industry. With utilities able – but not guaranteed – to pass on gains to the consumer, the thirst for renewable energy could wane, analysts warned. “Such a scenario could destroy value on existing renewable energy projects and make it difficult to raise financing for future projects,” Peter Atherton, utility analyst at Liberum Capital, told the Guardian.
However, Deutsche Bank energy analyst Vishal Shah yesterday released a report that suggested there would be “limited/no impact from recent oil price weakness” on the solar industry, with PPA prices in the U.S. immune from oil fluctuations. In China, Shah added, government appetite to tackle air pollution also protects the solar industry from external volatility, while the U.S. residential solar market is even more insulated from external forces, which spells good news for companies like Solar City.
In Japan, energy advisor to the government and senior fellow at Mitsui Global Strategic Studies Institute Takashi Hongo told Bloomberg that “renewables are supported by policies, and that is not something that will be amended quickly just because oil prices fall,” suggesting there will be hardly any negative impact to the solar industry.
A warning shot was fired from Lin Boqiang, director of the Energy Economics Research Center at China’s Xiamen University, however. “If oil stays at current prices or weakens through the first half of next year, the impact on new energy would be massive,” Boqiang told Bloomberg. “Weakening oil prices would hamper the competitiveness of new energy.”
“The fact that oil is so unpredictable is one of the reasons why we must move to renewable energy, which has a completely predictable cost of zero for fuel,” urged Christiana Figueres, executive secretary of the UN Framework Convention on Climate Change at the opening of the COP20 climate conference in Peru.
A changing tide
Following oil’s dramatic price fall last week, this week began with two seismic announcements that could hammer a further nail into the fossil fuel coffin. First, German utility E.ON announced that it is to pivot away from fossil fuels by 2016, pouring the majority of its resources into the development of renewable energy sources.
Then, a day later, the Bank of England (BOE) wrote a letter to the U.K. government’s Environment Audit Committee announcing that it is to formally begin examining the risks fossil fuel companies pose to financial stability.
BOE governor Mark Carney expressed his concern that much of the world’s proven coal, oil and gas reserves may be “unburnable” if the world is to keep global warming within safe limits.
“In light of discussions with officials, we will be deepening and widening our inquiry into the topic,” wrote Carney. “I expect the Financial Policy Committee to also consider this issue as part of its regular horizon-scanning work on financial stability risks.” […]”