Wednesday, 27 August 2008

Even "green" energy needs lower oil price

As a lengthening economic slowdown bites, the antidote for the renewable energy sector may come as a surprise -- a lower oil price.

Government subsidies and record prices for competing fossil fuels have underpinned the alternative energy boom, but now they are now starting to work against the sector.

Reliance on subsidies exposes the likes of wind and solar power to the whim of governments grappling with wider voter priorities during a global economic slowdown.

As oil and energy bills have soared consumers have become less tolerant of the extra costs passed on to them by utilities for the greener option.

"Government priorities in the last five years or so have been very clearly environment, security of supply, and way down the list has been price... all of a sudden affordability has shot to the top," said Citigroup utilities analyst Peter Atherton.

"If oil drops back to $80 then government can probably live with it (the extra cost of climate policies)."

Higher oil prices have made onshore wind competitive with natural gas, making continuing subsidies there less important, but more expensive renewable energy sectors and especially solar will be hurt by a policy pull-back.

Europe, the United States, China and India want to ramp up power production from low-carbon wind, solar and biomass to battle climate change and source more secure, domestic energy.

full article

No comments: