The Falling Price of Oil and Its Impact on the Solar Power Industry

Posted on Feb 17, 2016 in Energy Efficiency by Matthew Speer 0 Comments

Crude oil costs have fallen off a cliff in recent months, with the cost of a barrel of crude below $30. In all, the price of oil has dropped 70% since June 2014.

The reasons why are simple economics – worldwide, supply is outweighing demand. On the supply side, the United States has doubled oil production, and production also has been increased in places such as Canada and Russia, according to the New York Times.

Meanwhile, because the U.S. is producing more and buying less from other countries, those countries – such as Saudi Arabia and Nigeria, for example – are now competing to sell in other markets, such as Asia. That competition is forcing them to drop prices.

The oil drop means better prices at the gas pump for consumers, but falling profits for oil and gas companies. There have been about 250,000 jobs lost in the industry, according to the Times.

But what does all this mean for alternative energy such as solar?

Solar Power Remains Strong

It might make sense that falling oil prices would mean more consumption of fossil fuel and less use of alternative energy supplies, such as solar. That, however, has not been the case. “The prolonged plunge in fossil fuel prices is rippling across the globe. Yet it’s barely put a dent in the booming market for clean energy, heralding perhaps a new era for wind and solar,” according to National Geographic.

Solar and wind attracted $329 billion in investment last year even as oil prices fell to a 12-year low. Solar and wind also installed a record amount of power capacity.

“There’s a lot of momentum behind clean energy,” Angus McCrone, chief editor for Bloomberg New Energy Finance, told National Geographic.

Reasons Why Solar Continues to Expand

According to McCrone and other experts interviewed by National Geographic, there are a number of reasons why the solar energy industry remains strong even as oil prices remain low.

While oil prices have fallen, so have prices for solar, which is down about 60%.
Because of the price drop, solar is competitive in many countries for use providing energy for power plants that produce electricity.
In the U.S. alone, 60% of new power capacity in the U.S. came from solar in 2015, and some experts believe it will reach 70% this year.
Countries around the world are trying to meet the reduction in carbon gas emissions agreed to at the United Nations climate according meeting held in Paris in 2015. This means public policy – and government dollars – are flowing into backing clean energy initiatives such as solar.
While countries like the U.S., India and China are cutting back on fossil fuels, other areas of the world who never had reliable power grids – areas of Africa, for example – are moving into solar as a way cheap and quick way to supply people energy.
Private support for solar power is also increasing. According to a report from Influence Map, more than half of the top global industrial companies want to reduce emissions at a rate that is compatible with the standards from the Paris meeting.

While it seems somewhat contradictory, all of the above has led to solar energy remaining strong even as oil prices have fallen. And experts also expect the use of electric cars and solar power used for industrial purposes to keep rising.

“Fossil fuels will be here for decades to come,” Jonathan Grant of PricewaterhouseCoopers told National Geographic. “But their share will fall.”