How low oil prices can fuel an unexpected revolution in renewables
Doug Woodring says the world must seize the surprise opportunity for investment in clean energy created by the disruptive innovation of fracking and the collapse in crude prices
The old school of thought was that high oil prices made renewable energy more competitive, but this did not remove the need to also compete with over US$650 billion in global subsidies to the oil industry. Now, with oil at below US$30 a barrel, we have the opportunity of a lifetime to shift investment to the clean energy that is needed. “Big oil” companies are haemorrhaging at the wells, laying off large numbers of staff, and countries are now less inclined to keep those unnatural levels of subsidies intact as they reallocate spending to long-needed infrastructure and services.
This creates the opening for a big shift to renewables. Large companies no longer have the resources or the will to make big new investments in wells, which are increasingly expensive. The smart money will begin to shift to long-term investments in clean energy, which countries are now beginning to aggressively support as a consequence of the Paris climate agreement. Hong Kong, take note.
The other significant factor driving this shift is the disruptive innovation of fracking which will virtually guarantee that oil prices do not rise for a long time.
Fracking – the ability to extract, with relative ease, gas from shale in previously unreachable locations and quantities – has pulled the rug out from under the feet of the large incumbents, with a multitude of smaller players now competing on production and supply.
Environmental groups do not like the potential impact of fracking, but we need to look at the silver lining. With low oil prices, even small new players will not want to enter the market. So, where will the money go? To clean energy, because there is no turning back technology, and fracking has opened the floodgates, creating sufficient supply for the US to now become an oil/gas exporter. That comes alongside scaled advances in solar, wind and other clean technologies, bringing prices down even further, while take-up rates and installations escalate.
We have also seen the rapid growth of electric vehicles and battery capacity through the likes of Tesla and Panasonic, the boom of megacities where cars will no longer thrive, and agreements within the Asia-Pacific Economic Cooperation forum that reduce tariffs on clean technology equipment between members, while aiming to double renewable energy generation by 2020.
The assumption was that low oil prices would kill off new innovations. Not this time. It only takes a year or two for innovation and scale to take root, and with all the factors in place, this is the time for renewables to take off. Even the World Economic Forum is talking about the fourth industrial revolution; they have not even factored in this development yet.
Doug Woodring is founder of Ocean Recovery Alliance