Showing posts with label Volatility. Show all posts
Showing posts with label Volatility. Show all posts

Falling oil Prices and a Global Climate Agreement

The decline in oil prices underscores the risk associated with fossil fuel investment. On December 1 as the COP20 talks began in Lima Peru, the UN's climate chief said that falling oil prices show the "high risk" of fossil fuel investments compared with renewable energies. This perspective was underscored by the December 14th Lima draft agreement that included mention of a world free from fossil fuel emissions by 2050. A final global climate agreement is scheduled to be signed in 2015 at COP21 in Paris. Prior to the Lima agreement there were agreements by the US and China and the European Union to cut greenhouse emissions from the burning of fossil fuels.

Christiana Figueres, head of the UN's Climate Change Secretariat, dismissed suggestions that a tumble in the price of oil to a five-year low on Dec. 1 could undermine hopes for a shift to renewable energies as a cornerstone of the climate deal. Oil price volatility "is exactly one of the main reasons why we must move to renewable energy which has a completely predictable cost of zero for fuel" once wind turbines or solar panels were built, she told a news conference.

"We are seeing more and more the realization that investment in fossil fuel is actually a high risk, is getting more and more risky," she said, welcoming a decision by Germany's top utility E.ON to spin off power plants to focus on renewable energy and power grids.

Still, other experts suggest that falling oil prices could slow investments in renewables and increase the consumption of dirty sources of energy.  To further compound the problem,  countries like Russia and Saudi Arabia may be more reluctant to make concessions at the climate talks, due to concerns that such concessions to devalue their oil assets. 

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Video - Why Oil Prices Will Keep Falling
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Low Oil Prices will Slow Renewable Energy and Impede the Growth of the Green Economy
Higher Oil Prices a Blessing for Fracking but what about Renewables?
High Oil Prices Stimulate Renewable Energy The Economic Costs of Canada's Oil Obsession
The Keystone XL and Rising Fuel Prices

Video - Why Oil Prices Will Keep Falling


Oil prices are already low and they continue to decline as more downward pressure is expected. On Friday December 12th the International Energy Agency (IEA) forecast a decline in demand for 2015 and they further predicted that healthy non-OPEC supply gains were poised to aggravate a global oil glut. The current outlook for global oil demand for 2015 was cut from 230,000 barrels per day (bpd) to 0.9 million bpd.


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The Economic Costs of Canada's Oil Obsession
The Keystone XL and Rising Fuel Prices

An Upside to Low Oil Prices?

While there is a clear downside to lower oil prices for renewable energy, there may also be a silver lining. Low oil prices are bad for renewable energy, but if they fall low enough they could decrease extraction of some of the dirtiest fossil fuels.

Declining oil prices are attributable to the fact that there is now more supply than demand. The low oil prices may be part of an effort by OPEC to leverage market forces that will slow extraction of tar sands oil in North America.

As oil prices decline extracting oil becomes less profitable. This particularly applies to dirty energy and resource intensive tar sands oil. By reducing margins it reduces the incentive for extraction. This applies downward pressure on the rush to exploit the Alberta tar sands and the Bakken shale in North Dakota.

To be profitable tar sands oil demands prices of between $60 and $100 per barrel. Goldman Sachs has predicted that oil prices will fall to around $70 per barrel in 2015. That is just ahead of the low end of the breakeven range. The current price of oil is around $80 per barrel.

At $70 a barrel this is below the break-even price for Bakken shale oil which is about $77 per barrel. The break-even point for Alberta's tar sands are even lower at $63.50 per barrel

Even if low oil prices manage to slow extraction of Bakken shale oil and the Alberta tar sands, it would still encourage more oil use and this will increase emissions. Cost cutting measures to maximize profit margins may also eat away at emissions reductions efforts associated with the extraction and refining of these dirty sources of energy.

Low oil prices will have a harmful impact on renewable energy as they will decrease investment and slow the growth of renewable energy.

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Why Oil Prices Matter for Renewable Energy
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Green Innovation and Fossil Fuels in Canada
Low Oil Prices will Slow Renewable Energy and Impede the Growth of the Green Economy
Higher Oil Prices a Blessing for Fracking but what about Renewables?
High Oil Prices Stimulate Renewable Energy The Economic Costs of Canada's Oil Obsession
The Keystone XL and Rising Fuel Prices

The Economic Costs of Canada's Oil Obsession

Canada's dependence on fossil fuels not only contributes to climate change it represents a serious threat to the economy. As oil prices plummet to a five year low, the Canadian economy is feeling the heat.  The declining price of hydrocarbons have driven down the value of the Canadian dollar and impacted stock prices on the TSE.

Canada's ruling Conservatives have bet on oil and this has disastrous implications for all Canadians. The fact that Canada is so closely tied to fossil fuels means that the nation's petro-currency is subject to profound market volatility.

The ramifications of Canada's dependence on oil will reverberate across the country making it more difficult to balance both provincial and federal budgets. The current market volatility indicates that an economy based on dirty energy is destined to falter which also imperils Canada's economic recovery. 

By investing so heavily in fossil fuels the federal government risks the future of all Canadians. While other nations are moving towards cleaner sources of energy the Conservatives under Prime Minister Stephen Harper have doubled down on the tar sands which are some of the dirtiest energy on Earth.

The science is clear, humans are the cause of global warming and fossil fuels are the primary cause. As the world begins to move towards cleaner energy, Canada remains mired in the old energy economy. Independent of the powerful environmental logic of moving away from fossil fuels, there is a strong economic case that has been made for moving towards cleaner energy.

The carbon bubble is growing and our carbon budget runs out. There is a growing consensus that more than two thirds of all the oil, gas and coal reserves are unburnable if we are to have a chance at keeping temperatures within the internationally agreed upon 2 degrees Celsius upper threshold limit. The combination of lower demand, higher supply and growing global pressure to reduce emissions will strand trillions of dollars of oil assets.

The need to address climate change is being driven home by significant increases in costly extreme weather events.

The calls for more responsible governance are coming from every quarter, not just environmental groups. Reputable organizations around the world have issued warning stating unequivocally that we must stop burning fossil fuels and step back from the brink of a climate disaster. These warning come from a wide range of sources including PricewaterhouseCooper, AGU, World Resources Institute, International Renewable Energy Institute, International Energy Agency (IEA), World Meteorological Organization, World Bank, and UNEP

Even the former head of the Bank of Canada (currently the head of the Bank of England), Mark Carney, acknowledges that we cannot burn most of the known fossil fuel reserves. He further cautions investors about the long-term threats.

Canada must change direction so that it can capitalize on the nation's abundant renewable resources and begin to develop a low carbon economy. Unless Canada changes its perilous course they will be the authors of their own ecological and economic demise.

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Why Oil Prices Matter for Renewable Energy
An Upside to Low Oil Prices?
Video - Why Oil Prices Will Keep Falling
Green Innovation and Fossil Fuels in Canada
Low Oil Prices will Slow Renewable Energy and Impede the Growth of the Green Economy
Higher Oil Prices a Blessing for Fracking but what about Renewables?
High Oil Prices Stimulate Renewable Energy
The Keystone XL and Rising Fuel Prices

Low Oil Prices will Slow Renewable Energy and Impede the Growth of the Green Economy

With oil prices at a 5-year low, renewable energy and the green economy are being hit with some serious headwinds. Low oil prices are not only detrimental to the growth of renewable energy it is also decreases demand for hybrid and electric cars as well as cleantech in general. High oil prices buoy interest in renewables, while low oil prices put downward pressure on the growth of the low carbon economy.

For more than a quarter century we have been exploring the ways in which oil prices are related to renewable energy. A 1989 World Bank study showed how renewable energy technologies are directly impacted by the price of oil. However this study added the caveat that the impact is muted in remote and rural applications (where fossil fuels are less available).

Historically, we have seen how sustained development of new energy sources always rests on the condition of the old ones. Europe did not turn to coal until it had cut down almost all of its trees. A more recent illustration comes from the oil embargo and high oil prices in the 70s. This led to an interest in alternative energy sources and fuel efficient cars. However, that all but collapsed as the price of oil declined in the 80s.

Over the last decade we have seen steady and growing interest in Renewable technologies such as wind and solar. So much so that they have gone from being an obscure pipe dream to representing a serious contributor to the energy mix of many nations.

Lower oil prices may be part of an OPEC conspiracy to make fossil fuels more price competitive at a time when renewable sources of energy are on the rise. Even more importantly, OPEC may want to keep oil prices low to keep the US from increasing its domestic extraction. Low oil prices leverage market forces that delay further investment in renewables.

Although renewables are close to being competitive with fossil fuels, their value decreases as the price of fossil fuels diminish. The net result for investors is that they can expect reduced profitability from alternative energy sources.

Consequently, falling oil prices can be expected to delay some of the investment capital pouring into renewable energy, electric and hybrid cars. Lower oil prices and declining investment could even augment fossil fuel use which would in turn increase emissions and accelerate the pace of global warming.

Governments could do at least four things to help remedy this situation

1. Remove fossil fuel subsidies

2. Tax fossil fuels

3. Increase support for renewables and cleantech

4. Regulate carbon emissions (ie put a cap on emissions)

Market forces and price competition in particular are not the only factors driving the low carbon economy. However, in the absence of government involvement, low oil prices will slow the green economy at a time when we urgently need to see accelerated growth.

Related
Why Oil Prices Matter for Renewable Energy
An Upside to Low Oil Prices?
Video - Why Oil Prices Will Keep Falling
Green Innovation and Fossil Fuels in Canada
Higher Oil Prices a Blessing for Fracking but what about Renewables?
High Oil Prices Stimulate Renewable Energy
The Economic Costs of Canada's Oil Obsession
The Keystone XL and Rising Fuel Prices

10 Leading Wind Energy Countries

24/7 Wall St. recently reviewed the Global Wind Energy Council’s (GWEC) 2011 ranking of the ten biggest producers of wind power in the world. Wind power keeps growing despite a recession and slow economic growth. According to the GWEC report the world’s wind energy capacity increased by 17.3 percent in 2011.

A relatively small number of leading economic powers are driving wind energy. Nine out of the 10 are among the 12 countries with the largest GDP.

To compile the following list of leading wind energy countries, 24/7 Wall St. used data from the Global Wind Energy Council report, BP’s Statistical Review of World Energy, and GDP data from the World Bank.

10. Portugal

Share of global wind power production: 1.7%
Increase in wind power (2011)/total: 377 MW/4,083 MW
Oil production: N/A
Oil consumption: 0.3 million barrels daily (0.3%)
GDP growth 2010: 1.4%

Portugal has dramatically increased its reliance on clean energy over the past few years. In 2005, 17 percent of the country’s electricity was derived from renewable sources. By 2010, this amount increased to nearly 45 percent. The New York Times reports that wind power, along with hydropower, is now Portugal’s main energy focus.

9. Canada

Share of global wind power production: 2.2%
Increase in wind power (2011)/total:1,267 MW/5,265 MW
Oil production: 3.3 million barrels/day (4.2%)
Oil consumption: 2.3 million barrels daily (2.5%)
GDP growth 2010: 3.2%

Canada increased its total wind power capacity by 24 percent in 2011. The country built 1,267 MW of new wind energy installations in the form of wind towers or wind turbines, effectively quadrupling Canada’s capacity. In 2010 690 MW installations were built.

8. United Kingdom

Share of global wind power production: 2.7%
Increase in wind power (2011)/total: 1,293 MW/6,540 MW
Oil production: 1.3 million barrels/day (1.6%)
Oil consumption: 1.6 million barrels daily (1.8%)
GDP growth 2010: 1.4%

The United Kingdom recently reached a record 6 gigawatts (GW) of wind energy, according to trade association RenewableUK. This is enough to power more than 3.3 million households. Another 19.5 GW are currently planned, and by 2020 over 30 GW are expected to be installed, the group reports.

7. Italy

Share of global wind power production: 2.8%
Increase in wind power (2011)/total: 950 MW/6,747 MW
Oil production: 0.1 million barrels/day (0.1%)
Oil consumption: 1.5 million barrels daily (1.8%)
GDP growth 2010: 1.3%

In 2011, the country increased its wind power capacity by 14 percent. According to the New York Times, more than 800 Italian communities now make more energy than they consume thanks to recent renewable energy plants, largely wind turbines.

6. France

Share of global wind power production: 2.9%
Increase in wind power (2011)/total: 830 MW/6,800 MW
Oil production: N/A
Oil consumption: 1.7 million barrels daily (2.1%)
GDP growth 2010: 1.5%

In 2010 France derived almost three quarters of its power needs from nuclear, now the country is increasing its use of renewable sources like offshore wind energy. According to Reuters, France has plans to meet 23 percent of its energy demand through renewable sources by 2020. The country also plans to double its wind power capacity by 2020.

5. India

Share of global wind power production: 6.7%
Increase in wind power (2011)/total: 3,019 MW/16,084 MW
Oil production: 0.8 million barrels/day (1.0%)
Oil consumption: 3.3 million barrels daily (3.9%)
GDP growth 2010: 8.8%

Wind energy is the fastest growing renewable energy sector in India, according to the Global Wind Energy Council’s 2011 report Indian Wind Energy Outlook. The report also notes that the national action plan on climate change aims to bring India’s total share of renewable energy sources up to 15 percent by 2020.

4. Spain

Share of global wind power production: 9.1%
Increase in wind power (2011)/total: 1,050 MW/21,674 MW
Oil production: N/A
Oil consumption: 1.5 million barrels daily (1.8%)
GDP growth 2010: -0.1%

As of March 2011, wind power has been Spain’s main source of electricity generation. However, spending cuts and political wrangling are threatening Spain's wind industry.

3. Germany

Share of global wind power production: 12.2%
Increase in wind power (2011)/total: 2,086 MW/29,060 MW
Oil production: N/A
Oil consumption: 2.4 million barrels daily (2.9%)
GDP growth 2010: 3.7%

Germany is the world’s third-largest producer of wind power. Germany is also reducing its reliance A decision by the government in the beginning of 2011 to phase out Germany’s nuclear plants has caused demand for wind turbines to soar. According to Bloomberg, “the government has raised subsidies for offshore wind farms as part of a plan to install 10,000 megawatts of sea-based turbines by the end of this decade, up from about 210 megawatts now.”

2. United States

Share of global wind power production: 19.7%
Increase in wind power (2011)/total: 6,810 MW/46,919 MW
Oil production: 7.5 million barrels/day (8.7%)
Oil consumption: 19.1 million barrels daily (21.1%)
GDP growth 2010: 3.0%

In the U.S. wind energy accounted for 2.3 percent of electricity purchased in 2010. Travis Miller, a Chicago-based utility analyst at Morningstar, believes that in wind power is to compete without government incentives, gas prices will have to double.

1. China

Share of global wind power production: 26.3%
Increase in wind power (2011)/total: 18,000 MW/62,733 MW
Oil production: 4.0 million barrels/day (5.2%)
Oil consumption: 9.1 million barrels daily (10.6%)
GDP growth 2010: 10.4%

China has invested heavily in wind energy, in 2011 alone it increased its wind capacity by 29 percent. According to Wang Zhongying, director and research fellow at the Center for Renewable Energy Development of the Energy Research Institute, “Wind power projects are expected to address 17 percent of the power demand in China,” by 2050.

© 2012, Richard Matthews. All rights reserved.

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Six Markets where Global Wind Energy Keeps Growing Despite Economic Uncertainty

Although some have reported that the wind industry is "gasping for air," a new report shows that the economic volatility we saw in 2011 did not keep the sector from growing. The dire prognosis for wind power is contradicted by AWEA CEO Denise Bode who said, "American wind energy's long-term fundamentals are strong."

As reported by Info Power, on February 14th, the Global Wind Energy Council's annual market statistics indicate that the wind industry installed just over 41,000 MW of new wind power in 2011, The total installed capacity globally is more than 238,000 MW at the end of last year. This represents an increase of 21 percent, with an increase in the size of the annual global market of just over 6 percent. Today, about 75 countries worldwide have commercial wind power installations, with 22 of them already passing the 1 GW level.

"Despite the state of the global economy, wind power continues to be the renewable generation technology of choice", said Steve Sawyer, GWEC Secretary General. "2011 was a tough year, as will be 2012, but the long term fundamentals of the industry remain very sound. For the second year running, the majority of new installations were outside the OECD, and new markets in Latin America, Africa and Asia are driving market growth."

China

China remains the global market leader with a cumulative capacity of more than 62,000 MW. Li Junfeng, Secretary General of the Chinese Renewable Energy Industry Association (CREIA) said "we expect the industry will grow stronger and more competitive in the next year [2012]."

India

India, added over 3000 MW of wind power installed in 2011 bringing India's total capacity to just over 16,000 MW. D.V. Giri, Chairman of the Indian Wind Turbine Manufacturers Association said, "this is likely to go up to 5000 MW per year by 2015. Ongoing initiatives of the Indian government to create new policies will attract large quantities of private investments to the sector."

European Union

The EU, added 9,616 MW of wind energy capacity in 2011, for a total installed capacity of 93,957 MW. According to the European Wind Energy Association (EWEA), wind power is now able to supply 6.3% of the EU's electricity requirements. "Despite the economic crisis gripping Europe, the wind industry is still installing solid levels of new capacity, commented Justin Wilkes, Policy Director of EWEA."

United States

US wind installations amounted to more than 6800 MW in 2011. As reported in Forbes, the US now has nearly 50,000 megawatts of wind power with another 8,300 megawatts under construction. Denise Bode, CEO of the American Wind Energy Association said "We have installed more than a third of all new American electric generation in recent years and are well on our way to providing 20 percent of America's electricity by 2030. Our 2011 installations alone provide enough electricity to power almost two million American homes."

Canada

Canadian wind energy enjoyed a record year in 2011, surpassing the 5000 MW milestone. Chris Forrest, Vice-President of Communications & Marketing of the Canadian Wind Energy Association said, "Canada, and in particular Ontario, is emerging as a very competitive destination for wind energy investment globally. As Canada continues to renew its electricity generation resources, wind energy will play an ever-increasing part in delivering reliable, economic and clean electricity."

Latin America

Latin America increased its wind capacity by more than 1200 MW, led by Brazil. Brazilian installations were up by half, adding 587 MW to reach a total of just over 1500 MW. According to Pedro Perrelli, Executive Director of the Brazilian Wind Energy Association (ABEEOLICA), "Brazil reached the 1 GW milestone during 2011, and has a pipeline of more than 7,000 MW to be completed before the end of 2016. The Brazilian wind sector has attracted significant investment, facilitated by the policies of the BNDES (Brazilian National Sustainable Development Bank)."

Conclusion

Government policies and government support are important to encourage investors and keep wind power growing. Perhaps the most important thing that can be done to strengthen the long term growth potential of wind power involves putting a global price on carbon.

© 2012, Richard Matthews. All rights reserved.

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