Richard Martin

A View from Richard Martin

Market Fall Masks Renewable Energy’s Bright Future

Why low oil prices will not halt the clean-energy revolution.

  • August 25, 2015

The global stock market plunge that accelerated on Monday dragged oil prices with it, as the price of a barrel of light crude in the United States fell below $40 a barrel. Also getting hammered are stocks in clean-energy companies: the MAC Solar Index, which tracks prominent solar companies, has fallen more than 31 percent in the last three months. Prominent solar providers First Solar, SunEdison, and SolarCity have all taken a market beating over that period, as have wind power suppliers and installers. 

Traditionally, the price of oil has been inversely related with the fortunes of renewable energy: the cheaper oil gets, the less competitive renewables, which have historically been more expensive on a per-megawatt basis, become. That continues to be true in the transportation sector: sales of electric vehicles have faltered in the U.S. this year as gas prices have fallen. In the broader energy sector, however, it’s a more tenuous, even false, connection.

“Ever since the oil prices began to decline in the middle of last year, investors have wrongly drawn negative correlation between the fall in oil prices and solar,” Mercom Capital CEO Raj Prabhu told PV magazine last week. “There is no real connection here.”

That’s true mainly for three reasons: one, unlike solar and wind energy, oil is hardly used to generate electricity in developed economies anymore; two, in many markets, the price of producing power from renewable sources has fallen along with oil prices; and three, the fundamentals of the renewable energy business have never been stronger, regardless of stock market swings.

As the global coal industry declines, and as natural gas prices remain near historic lows, the conventional wisdom holds that utilities will switch to producing electricity from natural gas, rather than solar or wind. That, however, is not the case: according to the Solar Energy Industries Association, solar power accounted for more new generation capacity additions than any other resource in the first quarter of 2015, representing more than half the total of new installations in the U.S. Even as the markets’ fall gathered force last week, the Wall Street Journal reported on the solar power boom unfolding in West Texas, in the heart of the oil patch.

First Solar, the Colorado-based maker of solar equipment, has lost 41 percent of its share price since peaking in late September 2014. But the company’s results are impressive (revenue of nearly $900 million in the second quarter, up from $544 million in Q2 of 2014), its balance sheet is strong ($1.78 billion in cash), and its future prospects are bright. The current sell-off has little to do with the underlying strengths of the company or the potential of its market.

That market received another boost on Monday when President Obama released his latest set of measures to boost clean energy in the U.S. The administration’s initiatives include $1 billion in new loan guarantees for alternative energy programs—including decentralized systems such as rooftop solar. At the same time, the Department of Energy’s ARPA-E program will provide $24 million in new funding for 11 advanced solar power projects.  

Equity investors may still perceive low oil prices as crippling to renewable energy, but the facts say otherwise. 

Get stories like this before anyone else with First Look.

Subscribe today
Already a Premium subscriber? Log in.

Uh oh–you've read all of your free articles for this month.

Insider Premium
$179.95/yr US PRICE

More from Sustainable Energy

Can we sustainably provide food, water, and energy to a growing population during a climate crisis?

Want more award-winning journalism? Subscribe to Insider Premium.
  • Insider Premium {! insider.prices.premium !}*

    {! insider.display.menuOptionsLabel !}

    Our award winning magazine, unlimited access to our story archive, special discounts to MIT Technology Review Events, and exclusive content.

    See details+

    What's Included

    Bimonthly magazine delivery and unlimited 24/7 access to MIT Technology Review’s website

    The Download: our daily newsletter of what's important in technology and innovation

    Access to the magazine PDF archive—thousands of articles going back to 1899 at your fingertips

    Special discounts to select partner offerings

    Discount to MIT Technology Review events

    Ad-free web experience

    First Look: exclusive early access to important stories, before they’re available to anyone else

    Insider Conversations: listen in on in-depth calls between our editors and today’s thought leaders

/
You've read all of your free articles this month. This is your last free article this month. You've read of free articles this month. or  for unlimited online access.