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Prediction: 2015 Oil Glut Will Have Positive Impact on Renewable Energy Industry

This article expounds upon last week's Walter Christmas post on "How Low Gas Prices Affect the Wind Energy Industry."

Increased oil production comes at high environmental and public health costs. But what does it mean for wind energy?

According to Ecotech Institute Wind Energy Technology Instructor Walter Christmas, “Oil and gasoline are transportation fuels. But wind energy powers our electrical grid. While a few early adopters of electric vehicle and plug-in hybrid vehicle technology can take advantage of grid power for transportation, the vast majority of transportation fuel is still petroleum-based.”

Christmas goes on to explain that the majority of the cost incurred by investors in a wind farm is from the actual cost of manufacturing, transporting, and erecting the wind turbines. You could say that it is a front-loaded investment with very little overhead cost to maintain for the remainder of its service life of 20-25 years.

In conclusion, Christmas states that “Short-term savings on petroleum are drastically reducing the overall cost to invest in wind energy. This is dramatically improving the profit margins and attracting investment at a faster rate than usual. This lowered cost allows wind energy to compete directly with coal and natural gas as a source of electrical generation. As the cost per kilowatt-hour of wind energy continues to decline, we have seen contracts signed between utilities and wind energy power producers that are cheaper than coal and natural gas. Remember… once a wind farm is built, the fuel is free!”

Outside Perspectives on Oil Production

While entrepreneurs like Richard Branson worry that cheaper oil could damage renewable energies, physicist and renewable energy expert Amory Lovins is more optimistic in a recent interview with The Guardian: “The unsubsidized cost of electricity from the most cost-effective new onshore wind projects beats all other forms of generation. Solar PV modules have dropped in price by about 80% since 2008, while LED lights are 85% cheaper than five years ago. The integration of various clean technologies, like electric cars, batteries and solar panels, are mutually reinforcing the drive towards competitiveness.”

CNBC’s Leslie Shaffer agrees: “Suddenly cheap oil prices may spur economic re-calculations across the board, but many analysts are sticking with a still-sunny outlook for renewable energy take up.”

On the other hand, $60/barrel oil is a problem for the emerging biofuel market. According to Renewable Energy World, “Generally speaking, biofuels work best in a sweet spot that’s somewhere around $80-$95 right now. Much lower … the projects don’t pencil out, can’t compete against oil prices, and it is just tough to get bankers excited.”

So what’s the deal with today’s cheap oil prices? I dare say, as someone who has been touting the implications “peak oil” for many years, I never thought I would see the recent upturn on this graph:

Chart outlining US Crude Oil Production.
(Image Source: resilience.org)

This upturn is not a good thing. The increased production comes at the high environmental and public health costs of deepwater drilling (think BP Gulf blowout) and energy- and water-intensive tar sands mining. Oil that was once too expensive to reach and too dirty to exploit has now become profitable, leading to the current overproduction. Yet, in a remarkable example of market failure, instead of oversupply causing us to cut back on production, most experts say that production is expected to increase in the near future – a clear sign of something wrong with this picture.

At least our fossil foolishness has not killed safe, clean, renewable energy. Indeed, despite a temporary insanity oil glut, I feel quite safe in predicting that the outcome will be the other way around.

Kyle G. Crider (MPA, LEED AP ND) is a professional science and sustainability “story teller.” In his spare time he is pursuing his Ph.D. in Interdisciplinary (Environmental Health) Engineering and traveling the highways and by-ways of home state with his wife Beverly in search of fact, fiction, and folklore for Strange Alabama.