Falling Fossil Fuel Prices May Not Dim Solar’s Future

Condenser Towers

By James Noble

December 18, 2014

With a glut of cheap natural gas and the price of oil nearing historic lows, some analysts are predicting that cheaper oil prices could, “destroy value on existing renewable energy projects and make it difficult to raise financing for future projects.” 

Amidst all the hand wringing over what cheap oil and natural gas will do to investment in renewables, it’s easy to lose sight of the fact that the cost and price of renewable energy technologies have been falling just as quickly as oil and gas. And when fossil fuel prices start to climb back up, renewables will be more competitive than ever.

Currently, solar electricity is on track to be as cheap or cheaper than average electricity-bill prices in 36 U.S. states by 2016. The main reason why solar-power generation will continue to grow is that it’s a technology, not a fuel. As such, the maturing technology will see efficiency increases and falling prices, whereas with finite resources such as fossil fuels, prices will ultimately rise.

In recent years, solar and other renewable energy sources have become increasingly insulated from the volatility of the oil market. Most governments support clean energy either by offering feed-in tariffs – fixed prices for power fed into the grid – or by holding auctions to buy a certain amount of generating capacity. Once set, those contracts can’t be revised, meaning that renewable power plants in operation now will most likely continue to beso for years to come.

Ultimately, renewable energies like solar power are important tools that help reduce greenhouse gas emissions and combat global warming. Because of solar’s comparatively small market share today, no matter how quickly capacity expands, it will not have much of an impact on the price of other forms of fossil fuel energy. But soon the reverse may also be true: gas and oil prices will lose their sway over the solar industry.