Since the financial crisis hit us hard the oil price has dropped dramatically, by something like 50% from around 140 USD per barrel at the peak to currently around 70 USD per barrel. Now, the current key questions are, will the price remain at this level, and what does this do to all the projects that are underway in renewable energy?
Clearly, this has a short-term impact on the profitability of some renewable energy projects where the revenues are dictated by the oil price which in turn has a direct impact on e g the price of electricity. If the oil price remains at this level, it will stop some new projects that are dependent on a higher oil price. They will not get financing because the business case will not be good enough.
A good source for data and discussion about the oil price is the oil drum. This week you could read about a new report from the International Energy Agency which clearly predicts that the oil price will start to climb rapidly again as soon as the economy starts to regain, due to peak oil effects. IEA predicts an oil price exceeding 200 USD per barrel 2030.
It is also important to understand that it is not only projects based on renewable energy that are hit when the oil price is lower. Most of the “newer” oil fields are of low quality/high production cost, which means that they are hit equally hard by a lower oil price, thereby increasing the peak oil effects and thereby increasing the oil price. This is the case for Canadian oil sands that require a price of 90 USD per barrel according to French oil company Total (FT). The situation is similar for the Russian oil companies which now have problems with profitability and sufficient re-investment in fields and technology (Affärsvärlden).
Here is a very good video with a lecture from Google Tech Talks by Richard Heinberg which gives good insights into the realities behind peak oil and sustainability. Heinberg isn’t a solutions guy, so the film focus on the issues we are facing. A depressing but important message.
If you want an overview of the short-term impact on renewable energy projects and how they are hit by the oil price and the financial crisis, I found this article from Windaction helpful.
My message in summary is that the long-term prospects for renewable energy projects are as good as before. The trick is to overcome the current credit crunch, i e find ways for the projects to survive without new money right now.
It’s like the old student days. The party is over. Back to the noodles.
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[...] Clearly, how companies look upon resources will have to change over the coming years. Fossil fuels dependency is a big risk for companies these days. We have seen how the oil price went haywire during the last year and fossil fuel prices are likely to increase rapidly over the next few years. We have written about this several times earlier on the blog. Peak oil is a reality. [...]