Has the fall in Oil Prices affected Renewable Investments?
At the end of last year, myself and a fellow student gave a presentation on how the price of oil effected investments into renewables. From the facts that I am about to state below, I believe that the answer is yes. As I am sure most of you are aware, the oil price is having a tough time of it at the moment. OPEC has kept up a steady pace of supply, the Americans are surviving the excess supply storm – so far – and Iran is about to open its doors to the world once again. But, the question at hand is, does this have any effect on a world that is in need of renewable energy?
Now, some of you may be thinking that the two are very different things. Oil in the UK is mainly used for the likes of petroleum, compared to renewables that are mostly used for heat and electricity. Currently the global crude oil price is below $30 a barrel and has potential to fall further. Even though capital expenditure in the industry was expected to slow down, such a decline in the price has been considered a double hit to the industry. Therefore, producers and investors should be looking to alternative investments that don’t have a heavy reliance on oil I.e. renewable technology.
Despite a record growth in global green energy investments of 17% to reach $270Bn in 2014, certain policy decisions, especially in the UK, have led to fear that the the development of renewable technology could be slowing down – Taking for example the announcement of an 87% cut in renewable subsidies and a move towards Contracts for Difference in the energy sector. This in turn could lead short term investors to be sceptical about potential returns and long term investors working about their investment yields.
Taking a more in-depth look into the situation – I have taken the real price of oil over the past ten years and world renewable investments over the same period – as you can see from the graph above, the two are clearly linked.
Having taking the global renewable investment figures for 2014 and regressed them against the real oil price, we can see from above that the global oil price has a significant impact on renewable investments. An increase in the oil price is likely to lead to an increase in renewable investments from America for example.
Interestingly, notice how for the likes of China, a global leader in renewable investments, there is a reduction in green investments as the price of oil increases, the same goes for India and Brazil. Now, what do each have in common? Developing nations! Further stressing the fact that developing nations, should be reducing there need for oil.
Now, take from these statistics what you will – however, for me the facts state some clear truths that leading policy makers across the globe need to consider. For one, it is clear that the oil price does have an effect on renewable energy, therefore, policy decisions such as the one taken by the UK government to slash subsidies is only going to hinder further investment. Secondly, with such a link having been shown, developed countries need to be putting pressure on developing nations, to reduce and a skip the stages of using fossil fuels in their economic development.
I understand that I have not divulged fully into all of the facts and arguments of this topic in the blog. However, as this is my first one I just wanted to share some interesting and very relevant information that I had been working on. Please feel free to comment or get in touch with me with regards to what has been said – thanks for reading!
Kyle Barrie – firstname.lastname@example.org