Plummeting oil prices show parity isn't enough

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Richard Heap
October 17, 2014
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Plummeting oil prices show parity isn't enough

Oil prices are at their lowest level since 2010. This puts pressure on the fossil fuels sector. Time, then, to break open the champagne?

Well, no. While this puts pressure on oil and gas firms share prices and causes headaches for oil-rich nations, it’s not really welcome news for wind, either. A climate of declining energy prices can only make life tougher for renewable energy.

It also rams home the idea that grid parity, though good, is not a sufficiently ambitious aim.

The oil price slump was highlighted this week by the International Energy Agency, which reported that Brent crude fell by almost a quarter since June, from around $115 a barrel then to around $88 a barrel now. This has been driven by a boom in US shale gas, and weaker-than-expected demand from a stuttering global economy.

This is understandably a cause for concern in countries like Saudi Arabia, where the investor Prince Alwaleed bin Talal al-Saud called the lower oil prices “a catastrophe that cannot go unmentioned”. But it should also be up for debate in wind firm boardrooms.

The first problem is that lower oil prices mean tougher competition for wind projects, which must be price competitive. It is all very well that wind farms are, in some parts of the world, cheaper than rival energy sources. And a move to operate without subsidies, and at a point at which grid parity can be achieved, must be encouraged.

But it also shows that the goal to reach grid parity simply isn’t enough. There has to be constant innovation to increase the efficiency of projects, and drive down their cost. This is vital to keep up the pressure on the huge global fossil fuel industry.

And there’s a second big problem. Consistently low oil prices will undermine some of the main arguments currently used to sell wind, particularly offshore wind, to an often sceptical public.

Politicians in the UK, for instance, have thrown their weight behind offshore wind with the justification that high, up-front capital expenditure will protect the UK from rising fossil fuel prices. If that doesn’t happen, it will fuel complaints of political short-sightedness.

Like it or not, the wind sector needs political backing. If politicians take fright about the negative PR then it would hold up projects and delay the industry by half a decade or more. In the UK and Germany where offshore wind is growing, this could spell disaster.

So what can wind do in the face of low oil prices?

Positive PR can help. The campaigns by Dong Energy (“Offshore Wind Works”) and British Wind may get across some of the benefits of wind power and energy independence.

But the best way for the industry to compete is by innovating, to drive greater competitiveness on cost.

Parity isn’t enough. The industry must keep fighting to become more competitive and profitable. Standing on the sidelines while the oil price tumbles simply isn’t an option.

Oil prices are at their lowest level since 2010. This puts pressure on the fossil fuels sector. Time, then, to break open the champagne?

Well, no. While this puts pressure on oil and gas firms share prices and causes headaches for oil-rich nations, it’s not really welcome news for wind, either. A climate of declining energy prices can only make life tougher for renewable energy.

It also rams home the idea that grid parity, though good, is not a sufficiently ambitious aim.

The oil price slump was highlighted this week by the International Energy Agency, which reported that Brent crude fell by almost a quarter since June, from around $115 a barrel then to around $88 a barrel now. This has been driven by a boom in US shale gas, and weaker-than-expected demand from a stuttering global economy.

This is understandably a cause for concern in countries like Saudi Arabia, where the investor Prince Alwaleed bin Talal al-Saud called the lower oil prices “a catastrophe that cannot go unmentioned”. But it should also be up for debate in wind firm boardrooms.

The first problem is that lower oil prices mean tougher competition for wind projects, which must be price competitive. It is all very well that wind farms are, in some parts of the world, cheaper than rival energy sources. And a move to operate without subsidies, and at a point at which grid parity can be achieved, must be encouraged.

But it also shows that the goal to reach grid parity simply isn’t enough. There has to be constant innovation to increase the efficiency of projects, and drive down their cost. This is vital to keep up the pressure on the huge global fossil fuel industry.

And there’s a second big problem. Consistently low oil prices will undermine some of the main arguments currently used to sell wind, particularly offshore wind, to an often sceptical public.

Politicians in the UK, for instance, have thrown their weight behind offshore wind with the justification that high, up-front capital expenditure will protect the UK from rising fossil fuel prices. If that doesn’t happen, it will fuel complaints of political short-sightedness.

Like it or not, the wind sector needs political backing. If politicians take fright about the negative PR then it would hold up projects and delay the industry by half a decade or more. In the UK and Germany where offshore wind is growing, this could spell disaster.

So what can wind do in the face of low oil prices?

Positive PR can help. The campaigns by Dong Energy (“Offshore Wind Works”) and British Wind may get across some of the benefits of wind power and energy independence.

But the best way for the industry to compete is by innovating, to drive greater competitiveness on cost.

Parity isn’t enough. The industry must keep fighting to become more competitive and profitable. Standing on the sidelines while the oil price tumbles simply isn’t an option.

Oil prices are at their lowest level since 2010. This puts pressure on the fossil fuels sector. Time, then, to break open the champagne?

Well, no. While this puts pressure on oil and gas firms share prices and causes headaches for oil-rich nations, it’s not really welcome news for wind, either. A climate of declining energy prices can only make life tougher for renewable energy.

It also rams home the idea that grid parity, though good, is not a sufficiently ambitious aim.

The oil price slump was highlighted this week by the International Energy Agency, which reported that Brent crude fell by almost a quarter since June, from around $115 a barrel then to around $88 a barrel now. This has been driven by a boom in US shale gas, and weaker-than-expected demand from a stuttering global economy.

This is understandably a cause for concern in countries like Saudi Arabia, where the investor Prince Alwaleed bin Talal al-Saud called the lower oil prices “a catastrophe that cannot go unmentioned”. But it should also be up for debate in wind firm boardrooms.

The first problem is that lower oil prices mean tougher competition for wind projects, which must be price competitive. It is all very well that wind farms are, in some parts of the world, cheaper than rival energy sources. And a move to operate without subsidies, and at a point at which grid parity can be achieved, must be encouraged.

But it also shows that the goal to reach grid parity simply isn’t enough. There has to be constant innovation to increase the efficiency of projects, and drive down their cost. This is vital to keep up the pressure on the huge global fossil fuel industry.

And there’s a second big problem. Consistently low oil prices will undermine some of the main arguments currently used to sell wind, particularly offshore wind, to an often sceptical public.

Politicians in the UK, for instance, have thrown their weight behind offshore wind with the justification that high, up-front capital expenditure will protect the UK from rising fossil fuel prices. If that doesn’t happen, it will fuel complaints of political short-sightedness.

Like it or not, the wind sector needs political backing. If politicians take fright about the negative PR then it would hold up projects and delay the industry by half a decade or more. In the UK and Germany where offshore wind is growing, this could spell disaster.

So what can wind do in the face of low oil prices?

Positive PR can help. The campaigns by Dong Energy (“Offshore Wind Works”) and British Wind may get across some of the benefits of wind power and energy independence.

But the best way for the industry to compete is by innovating, to drive greater competitiveness on cost.

Parity isn’t enough. The industry must keep fighting to become more competitive and profitable. Standing on the sidelines while the oil price tumbles simply isn’t an option.

Oil prices are at their lowest level since 2010. This puts pressure on the fossil fuels sector. Time, then, to break open the champagne?

Well, no. While this puts pressure on oil and gas firms share prices and causes headaches for oil-rich nations, it’s not really welcome news for wind, either. A climate of declining energy prices can only make life tougher for renewable energy.

It also rams home the idea that grid parity, though good, is not a sufficiently ambitious aim.

The oil price slump was highlighted this week by the International Energy Agency, which reported that Brent crude fell by almost a quarter since June, from around $115 a barrel then to around $88 a barrel now. This has been driven by a boom in US shale gas, and weaker-than-expected demand from a stuttering global economy.

This is understandably a cause for concern in countries like Saudi Arabia, where the investor Prince Alwaleed bin Talal al-Saud called the lower oil prices “a catastrophe that cannot go unmentioned”. But it should also be up for debate in wind firm boardrooms.

The first problem is that lower oil prices mean tougher competition for wind projects, which must be price competitive. It is all very well that wind farms are, in some parts of the world, cheaper than rival energy sources. And a move to operate without subsidies, and at a point at which grid parity can be achieved, must be encouraged.

But it also shows that the goal to reach grid parity simply isn’t enough. There has to be constant innovation to increase the efficiency of projects, and drive down their cost. This is vital to keep up the pressure on the huge global fossil fuel industry.

And there’s a second big problem. Consistently low oil prices will undermine some of the main arguments currently used to sell wind, particularly offshore wind, to an often sceptical public.

Politicians in the UK, for instance, have thrown their weight behind offshore wind with the justification that high, up-front capital expenditure will protect the UK from rising fossil fuel prices. If that doesn’t happen, it will fuel complaints of political short-sightedness.

Like it or not, the wind sector needs political backing. If politicians take fright about the negative PR then it would hold up projects and delay the industry by half a decade or more. In the UK and Germany where offshore wind is growing, this could spell disaster.

So what can wind do in the face of low oil prices?

Positive PR can help. The campaigns by Dong Energy (“Offshore Wind Works”) and British Wind may get across some of the benefits of wind power and energy independence.

But the best way for the industry to compete is by innovating, to drive greater competitiveness on cost.

Parity isn’t enough. The industry must keep fighting to become more competitive and profitable. Standing on the sidelines while the oil price tumbles simply isn’t an option.

Oil prices are at their lowest level since 2010. This puts pressure on the fossil fuels sector. Time, then, to break open the champagne?

Well, no. While this puts pressure on oil and gas firms share prices and causes headaches for oil-rich nations, it’s not really welcome news for wind, either. A climate of declining energy prices can only make life tougher for renewable energy.

It also rams home the idea that grid parity, though good, is not a sufficiently ambitious aim.

The oil price slump was highlighted this week by the International Energy Agency, which reported that Brent crude fell by almost a quarter since June, from around $115 a barrel then to around $88 a barrel now. This has been driven by a boom in US shale gas, and weaker-than-expected demand from a stuttering global economy.

This is understandably a cause for concern in countries like Saudi Arabia, where the investor Prince Alwaleed bin Talal al-Saud called the lower oil prices “a catastrophe that cannot go unmentioned”. But it should also be up for debate in wind firm boardrooms.

The first problem is that lower oil prices mean tougher competition for wind projects, which must be price competitive. It is all very well that wind farms are, in some parts of the world, cheaper than rival energy sources. And a move to operate without subsidies, and at a point at which grid parity can be achieved, must be encouraged.

But it also shows that the goal to reach grid parity simply isn’t enough. There has to be constant innovation to increase the efficiency of projects, and drive down their cost. This is vital to keep up the pressure on the huge global fossil fuel industry.

And there’s a second big problem. Consistently low oil prices will undermine some of the main arguments currently used to sell wind, particularly offshore wind, to an often sceptical public.

Politicians in the UK, for instance, have thrown their weight behind offshore wind with the justification that high, up-front capital expenditure will protect the UK from rising fossil fuel prices. If that doesn’t happen, it will fuel complaints of political short-sightedness.

Like it or not, the wind sector needs political backing. If politicians take fright about the negative PR then it would hold up projects and delay the industry by half a decade or more. In the UK and Germany where offshore wind is growing, this could spell disaster.

So what can wind do in the face of low oil prices?

Positive PR can help. The campaigns by Dong Energy (“Offshore Wind Works”) and British Wind may get across some of the benefits of wind power and energy independence.

But the best way for the industry to compete is by innovating, to drive greater competitiveness on cost.

Parity isn’t enough. The industry must keep fighting to become more competitive and profitable. Standing on the sidelines while the oil price tumbles simply isn’t an option.

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Not a member yet?

Become a member of the 6,500-strong A Word About Wind community today, and gain access to our premium content, exclusive lead generation and investment opportunities.