The price of oil has tumbled to a five-year low. But how does this impact the solar power industry?
First, let’s barrel in to the background behind cheaper oil.
Why is oil so cheap?
Australia’s plummeting oil prices have coincided (of course) with global oil prices.
Between 2010 and mid-2014 world oil prices consistently sat around $110 a barrel. In recent times, however, Brent Crude and U.S. oil have fallen below $50 a barrel.
There are two main factors driving the price dip – oversupply and increased competition. Oil production levels in the U.S. are the highest they’ve been in 30 years, mostly due to the extraction process of fracking (which has enabled a major increase in productivity). Meanwhile, there’s been decreased demand from oil importers China, Japan and the European Union all of which have experienced a weakness in their economies.
Instead of cutting production to create demand, Saudi Arabia oil cartel OPEC is showing no signs of slowing down in order to push out competition.
Where does that leave solar?
A significant price drop to one form of energy inevitably impacts other energy industries. To give you an idea of the shift felt by investors: In America, First Solar was trading near $72 in mid-September; now it's around $44. Solar City was around $65; now it's close to $50.
Some solar investors have turned cautious, fearing that cheap oil will erase the demand for alternative energy. Will it, though?
The facts are that oil and solar serve two different customers. Not to mention the growing demand for solar power and renewable energy across many countries.
Whilst oil dominates energy demand in transportation fuels, solar power customers are primarily of two types: public electric utilities and large corporations. Neither of those use oil to generate electricity, and they are not about to start.
Industry analysts are also confident that even with lower oil prices, cheaper materials have still made solar far more practical. Plus, solar panels are inexpensive to maintain and once installed draw upon a free and unlimited energy source – sunlight.
Oil may be cheap, but there’s currently little available infrastructure to convert it to power.
So, solar’s future is still looking bright?
Absolutely! Demand for solar is rising around the world and new technologies and increased competition will continue to drive down costs. Corporate solar customers are fuelling growth. And as policy continues to bend in the favour of renewable energy, many states (particularly in the U.S.) will mandate a significant portion of electricity is obtained from renewable sources.
Fill up on cheap fuel while you can. But make no mistake; solar is in this one for the long haul.