It was recently reported in several papers that the oil price shock of 2009 was caused
by a drunk oil futures trader who bought 7 million barrels of oil. Almost instantaneously, the clean/renewable energy sector was brought back to life worldwide.
Imagine that. It had to take a drunk oil trader to rescusitate this industry. Sadly, the
rescusitated renewable energy sector is in danger of crashing back to earth
every time the price of oil drops back to normal levels. Most users will try to seek
the cheapest source of energy available - in general these are the fossil fuels. Never
mind if climate change is an issue. Between environmental benefit and cost, the latter
often always wins out. People always speak in favor of clean technologies, but when it
comes time to pull out the checkbook, well wait a minute...(also known in Tagalog as "teka muna.")
This is not the first time this has happened. Renewable energy's growth is correlated
with the price of oil. In other words, when oil prices go up, the renewable energy
sector becomes a growth sector. Inversely, when oil prices drop, renewable energy
becomes a last priority.
A few years after the end of the first OPEC oil crisis, the Reagan administration removed the solar panels from the roof of the White House, signaling the end of a short love affair with renewable energy. With oil prices more or less at normal levels, many industries and customers are again rethinking the rationale for investing in renewable energy. The same story happens over and over again. Oil prices shoot up. Renewable energy becomes hot again. Oil prices revert to normal levels. Renewable energy becomes yesterday's trend again.
Something has to happen to break this cycle. Because renewable sources like wind and solar are currently more expensive, investors want to make sure that the return will be higher than investments in fossil fuel based sources. Some Asian countries have started to legislate measures like Feed-in-Tariffs and Renewable Portfolio Standards that try to guarantee a market for renewable energy investors with a slightly higher return than fossil sources to make it attractive to investors.
The way it is typically done (e.g. the 2008 Philippine Renewable Energy Act) is to softly introduce a 1% requirement for utilities to source their electricity from renewable energy sources (called a Renewable Portfolio Standard) and allowing a higher price to be charged for it (called a Feed-in-Tariff). These measures are often easy to introduce at the start. This percentage by law is often increased annually, often to a 10-20% renewable energy percentage at the end of a decade.
The hope is that a guaranteed market that increases annually, and is decoupled with oil's price, will assure investors, entrepreneurs and technologists that their investments and efforts will not be in vain. With a guaranteed market that increases, economies of scale and spurts in innovation will happen that will hopefully lead to cheaper and more efficient renewable energy equipment, much like the increased adoption of PC's and chips led to better, faster and cheaper growth for these industries.
But therein lies the challenge. By increasing that renewable energy percentage annually, customers will at some point notice that the more expensive renewable energy sources are pulling up the average cost of power, particularly with sources like wind and solar.
They may not notice it at the start with a 1% percentage, but see what happens with
increasing percentages. Hopefully the technologists can discover cost breakthroughs
that will not make this necessary, but there is a chance that they will not be that fast,
especially if the investment climate for renewables seems to swing back and forth like
a pendulum.
Here is the challenge for governments, media, and concerned citizens. How do we make customers happily pay for the increased average cost of electricity when mixed with increased renewable energy sources? By convincing citizens to bite the bullet for a few years, we ensure the steady growth of renewable energy, that will lead to a faster pace of investment, innovation, efficiency and cost savings. It's all about getting citizens to commit to renewable energy, regardless of the price of oil.
It has happened in the cellphone industry - there are cheap cellphone calling plans, but there are also more expensive calling plans. With citizen commitment, a Green Option (sort of like a special calling plan, but for electricity) can succeed where certain customers happily pay for slightly more expensive power that comes from renewable energy sources.
The alternative if we do nothing, is to wait for another drunk oil trader to shoot up the
price of oil every few years just to keep the renewable energy sector alive.
-------
Dennis Posadas is the author of Jump Start: A Technopreneurship Fable (Singapore:
Pearson Prentice Hall, 2009) and has a new business fable on clean energy.
###
by a drunk oil futures trader who bought 7 million barrels of oil. Almost instantaneously, the clean/renewable energy sector was brought back to life worldwide.
Imagine that. It had to take a drunk oil trader to rescusitate this industry. Sadly, the
rescusitated renewable energy sector is in danger of crashing back to earth
every time the price of oil drops back to normal levels. Most users will try to seek
the cheapest source of energy available - in general these are the fossil fuels. Never
mind if climate change is an issue. Between environmental benefit and cost, the latter
often always wins out. People always speak in favor of clean technologies, but when it
comes time to pull out the checkbook, well wait a minute...(also known in Tagalog as "teka muna.")
This is not the first time this has happened. Renewable energy's growth is correlated
with the price of oil. In other words, when oil prices go up, the renewable energy
sector becomes a growth sector. Inversely, when oil prices drop, renewable energy
becomes a last priority.
A few years after the end of the first OPEC oil crisis, the Reagan administration removed the solar panels from the roof of the White House, signaling the end of a short love affair with renewable energy. With oil prices more or less at normal levels, many industries and customers are again rethinking the rationale for investing in renewable energy. The same story happens over and over again. Oil prices shoot up. Renewable energy becomes hot again. Oil prices revert to normal levels. Renewable energy becomes yesterday's trend again.
Something has to happen to break this cycle. Because renewable sources like wind and solar are currently more expensive, investors want to make sure that the return will be higher than investments in fossil fuel based sources. Some Asian countries have started to legislate measures like Feed-in-Tariffs and Renewable Portfolio Standards that try to guarantee a market for renewable energy investors with a slightly higher return than fossil sources to make it attractive to investors.
The way it is typically done (e.g. the 2008 Philippine Renewable Energy Act) is to softly introduce a 1% requirement for utilities to source their electricity from renewable energy sources (called a Renewable Portfolio Standard) and allowing a higher price to be charged for it (called a Feed-in-Tariff). These measures are often easy to introduce at the start. This percentage by law is often increased annually, often to a 10-20% renewable energy percentage at the end of a decade.
The hope is that a guaranteed market that increases annually, and is decoupled with oil's price, will assure investors, entrepreneurs and technologists that their investments and efforts will not be in vain. With a guaranteed market that increases, economies of scale and spurts in innovation will happen that will hopefully lead to cheaper and more efficient renewable energy equipment, much like the increased adoption of PC's and chips led to better, faster and cheaper growth for these industries.
But therein lies the challenge. By increasing that renewable energy percentage annually, customers will at some point notice that the more expensive renewable energy sources are pulling up the average cost of power, particularly with sources like wind and solar.
They may not notice it at the start with a 1% percentage, but see what happens with
increasing percentages. Hopefully the technologists can discover cost breakthroughs
that will not make this necessary, but there is a chance that they will not be that fast,
especially if the investment climate for renewables seems to swing back and forth like
a pendulum.
Here is the challenge for governments, media, and concerned citizens. How do we make customers happily pay for the increased average cost of electricity when mixed with increased renewable energy sources? By convincing citizens to bite the bullet for a few years, we ensure the steady growth of renewable energy, that will lead to a faster pace of investment, innovation, efficiency and cost savings. It's all about getting citizens to commit to renewable energy, regardless of the price of oil.
It has happened in the cellphone industry - there are cheap cellphone calling plans, but there are also more expensive calling plans. With citizen commitment, a Green Option (sort of like a special calling plan, but for electricity) can succeed where certain customers happily pay for slightly more expensive power that comes from renewable energy sources.
The alternative if we do nothing, is to wait for another drunk oil trader to shoot up the
price of oil every few years just to keep the renewable energy sector alive.
-------
Dennis Posadas is the author of Jump Start: A Technopreneurship Fable (Singapore:
Pearson Prentice Hall, 2009) and has a new business fable on clean energy.
###
