Impact of Current Fossil Fuel Prices on Renewables

Why are natural gas and oil prices so low currently?

Our nation’s current production of petroleum and natural gas has put us on top of the list of producers globally. This abundance has aided the current collapse of the price of fossil fuels over the past six months. This is primarily due to innovation in hydraulic fracturing, horizontal drilling, and information technology.

The question is, will a surplus of fossil fuels impede our countries shift to renewable sources of energy, such as wind and solar power?

Below is a graph illustrating the projected shift in energy production over the next 25 years:

What Will Be The Impact on Renewable Energy?

There is an important price difference between energy generated from technology-based sources like solar and wind and energy from commodity-based sources such as coal and oil. Considering the current position of the energy markets, fossil fuel prices can really only go up.

However, over the long run, the cost of energy from renewables is trending down as technology innovation is further developed. The cost of utility scale solar has fallen 80 percent, and wind energy has fallen 60 percent in the last five years.

Our current fossil fuel surplus, coupled with their decline in prices will have some effect on the growth rate of renewables. However, the fact that 78% of the economies of the U.S. have state mandated renewable portfolio standards points to a continued strong push for renewable options. The cost of most clean energy technologies are just beginning to decline due to improved efficiency and manufacturing improvements

Currently, renewable electricity makes up roughly 13% of total electricity generated in the U.S. With costs of wind and solar anticipated to further decline over the next decade, renewables could become competitive with any new form of energy in many parts of the U.S.

The Bottom Line

Despite major advances in renewable energy options, we will not ready to abandon fossil fuels for at least a half of a century because of their need for backup power. We must develop more efficient ways to transform very inexpensive electricity into cost competitive liquid hydrocarbon fuels that can be stored around the world.

After that, we can begin to wean ourselves from fossil fuels.

To receive more information about energy prices, and to start creating an energy strategy for your business, contact one of our senior advisors today at 1.800.920.4631.

Matt Helland
Sr. VP of Client Relations 

Sources:

newsweek.com
instituteforenergyresearch.org
eia.gov
afkinsider.com