Moving to Renewables: Why we should not be Deceived by the Oil Price Fall

During past several weeks we are witnessing a lot of confusion regarding future of renewables while crude price was tumbling. Sadly, it was not confined among novices of resource economics or markets. We do not know how could FT make a heading like “The Big Drop: Cheap oil burns green energy”! [By Pilita Clark in London, December 17, 2014] Even Mr Eric Reguly, European Bureau Chief Rome of The Globe and Mail very guardedly wrote “History suggests that clean energy and cheap oil are not compatible. ... I suspect that China’s clean-energy drive will slow down a bit if oil stays low. The Chinese are cost-conscious capitalists and won’t be able to resist entirely an energy bargain. But here’s hoping that ... cheap oil will not entirely derail China’s clean-energy pursuit.” [Cheaper oil and China’s clean-energy drive, The Globe and Mail Published Friday, Jan. 09 2015]

There are two obvious points that guide us to move steadily towards renewable energy even if we choose not to learn from the great German Example: one of the most technically advanced and sophisticated economy marching progressively towards a Zero-Nuclear & clean energy future. Already in the last year, we saw Germany setting a new record, generating 74 Percent of power needs from Renewable Energy even if for a single Sunday, which only showed Germany’s huge advancement in this field – producing more than a quarter of energy need from renewable on an average. [Think Progress, Kiley Kroh, May 13, 2014]

Point 1: Crude price fluctuate regularly as historical time-series data show. Ugo Bardi of the celebrated Club of Rome is one of the most respectful figures in the field of resources. Perhaps he got a bit annoyed over noisy market chatterers and presented a beautiful chart in his blog Cassandra Legacy which we reproduce here: (this chart was made by Frances Coppola)

Figure 1 from http://cassandralegacy.blogspot.in/2015/01/the-oil-price-collapse-whats-so-special.html

 It is a semi-log graph showing prices in log scale and it traces crude price in the last 30 years. It showed that oil is indeed slippery and 50% to even 75% falls are not uncommon or unforeseen.  Moreover within 2-3 years price rises again with general tendency of going up to a higher point than the previous crest. 

The inflation data website has yet another illuminating presentation showing us the oil price fluctuation in perspective (http://inflationdata.com/articles/inflation-adjusted-prices/gasoline/).  Let us see that:

Figure 2 Inflation adjusted oil price $/gallon, Courtesy http://inflationdata.com

So we can rest assured that just for a dip in crude price (which this time is more political than economic) we need not be nervous about future of renewable energy, that governments and inventors may opt for fossil-fuel again and ... etc. 

Point 2: Our drive for Renewable energy is not just a market-driven drive. It not only stems from resource economics but also and mainly from Ecological considerations. If making cheap was the criteria we would have ended up in a coal-economy as in Great Britain a century before or Coketown of the “Hard Times” (Charles Dickens) earlier. The rise of green-thinking in the second half of the last century was behind our paradigm shift from solely soulless profit-driven economic considerations. Nobody would like to see their future living in high rises in high deserts surrounded by high seas. And that was precisely where our development mania was driving us.

Some governments are trying to assimilate parts or bits of this new ecological paradigm, for example in Europe we have Spain and the Nordic or Scandinavian countries besides Germany. Governments are subsidising renewable like solar and wind knowing t fully well that subsidy ‘distorts’ market.

RWE AG, one of Germany’s largest utilities, is not feeling shaky with global crude price drop and their energy price drop as a recent Bloomberg report suggests. They just view it as a temporary or transient phase.

We also need not be concerned much fancying some dirtier bleaker renewable future. Moreover, people can propel government choices too, at least to some considerable extent.

Acknowledgement: I am thankful to Professor Ugo Bardi, http://cassandralegacy.blogspot.in/ and the website http://inflationdata.com

Published in Business Economics, 01-14 February 2015