Brent crude oil prices continue to hover around $57 and Henry Hub natural gas prices maintain at approximately $2.60. It is a good time to be a consumer of oil and gas, especially as summer nears. If you can purchase oil at such low prices, why invest in that solar rooftop or buy wind power from your utility?
Despite these low prices, renewables continue to surge in the United States and globally. Production of renewable energy is expected to outpace natural gas in 2015 with an estimated 18.3 gigawatts of energy. According to the numbers, carbon emissions in the US will be the lowest since 1994. Below are a few reasons for the apparent contradiction.
1) For the most part, the US does not use oil for power generation. As a result, the decline in oil prices does not decrease the demand for solar or wind. The use of natural gas for power generation requires the long-term exercise of planning, licensing and building a combined cycle natural gas power plant. While we expect to see an increase in these natural gas plants, renewables and particularly distributed generation and residential solar are much more flexible. This means they have an inherent advantage in the near term. In addition, community solar and wind and remote net metering reinforce the flexibility of renewable power by opening up ownership and usage of renewables to a much larger base.
2) Costs in the renewable sector continue to come down. The advent of solar loans, green bonds, yieldcos and other financing vehicles is driving down the soft costs of renewable power development, much in the same way that hard costs quickly came down in 2009–2011. The average residential power rate in the US was 12.1 cents in January according to the US Energy Information Agency, an increase for the first time since 2010. Renewables can beat this in many parts of the country.
3) Renewables are growing from a small starting base. Renewable generation for 2014 reached a high of 6.9% of all generation, 13.2% if you include hydroelectric power. This is a small base, but significant. Renewables are still rising at a 30+% clip per year.
4) Coal retirements are leaving a big hole in the market. More than 26 gigawatts of coal plants will likely come offline in 2015 due to age, natural gas costs and EPA regulations. This leaves a major opportunity in the US power generation sector for all other technologies, including renewable power. And the opportunity is not ending — another 30+ gigawatts of coal are expected to be retired before 2020.
The energy markets are integrated, but unless oil and gas can maintain the current ranges for 2–3 years, there will be little affect on renewables. Solar, wind and other forms of renewables have a bright future due to continued cost improvements, market opportunity and inherent flexibility.