Plunging oil prices are putting the squeeze on more expensive renewable energy sources—but maybe not in the way you’d think. With crude prices less than half of what they were last summer and the world awash in natural gas, it stands to reason that wind and solar, two energy sources already struggling to compete with fossil fuels, might be reeling. But as the FT reports, heavy government subsidies complicate the relationship between green and brown energy, making this more of a political question than a market one. The story quotes Ben Warren, of Ernst & Young, who states that falling costs and the structure of its contracts have protected renewables from oil’s price plunge in the marketplace. But, nevertheless, a challenge remains: If a nation “doesn’t see renewables as making an affordable contribution to the energy mix over the longer term, then there is a risk subsidies will be reduced or withdrawn.”So while the energy market may be distorted by state-backed funding, a world flush with fossil fuels going at cheap prices is one in which politicians will find it increasingly difficult to justify the costs of propping up expensive renewables. The UK is already experiencing a renewables retrenchment, with the Cameron government rolling back support for green sources that now look to languish.Subsidizing current-generation renewable energy technology has never made less sense. Solar panels and wind turbines couldn’t out-compete fossil fuels on price last summer when oil was well above $100 per barrel, and they can’t now with oil under $50. These energy sources could one day be an important component of a reliable, consistent, low-cost, and low-emissions global energy mix, but they’re clearly not there yet. If politicians are so keen to be seen spending money on eco-endeavors, they’d be much better served focusing time, effort, political capital, and, of course, government dollars on research and development rather than the direct subsidization of today’s renewable technologies.
Rethinking SubsidiesHow Cheap Crude Hurts Renewables