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Oil rally not enough to spur renewables investment
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LONDON - Investment in renewables is unlikely to be spurred by this
year's record rally on oil futures, as only longer-term high prices and stable
revenues for new projects will force an energy shift, experts say.
Oil futures in New York shot to record highs of nearly $50 a barrel this
month, creating higher costs for energy-importing nations and leading to fears
of global economic damage, before prices slipped to under $42 this week.
"Industry is going to need more bad news on oil prices before switching
to renewables," said Andrew Oswald, economics professor at Warwick University.
"Spikes won't do it as they don't change people's long-term outlook - you'd
need to see prices running at $50-$60 a barrel for over a year."
The oil price shocks of the 1970s spurred governments' research in
alternative forms of energy, but the drive to cut dependence on fossil fuels
faded in the 1980s as oil became cheap once more. In real terms current prices
are only half the level for Arabian crude hit in 1980, when the Iran-Iraq war
started.
Industrialised nations' spending on energy research and development
followed oil's curve, peaking in 1981 at $16 billion but dropping to $9 billion
by 1987, according to the International Energy Agency.
The share of world energy provided by renewables such as hydro and wind
power was 5.5 percent in 2001, only slightly higher than 4.6 percent in 1970,
the latest IEA figures show. In the past decade global energy research spending
has shown little growth.
"The decreasing share of public funding for energy R&D allocated to
renewable energy appears to be inconsistent with presumed political intentions
in many IEA countries to increase the share of renewables," the West's energy
watchdog said in a recent study.
Growth in renewables has varied widely. In Norway they made up 45 percent
of its energy sources by 2001, compared to 4.4 percent in the U.S and 3.1
percent in Japan, according to the IEA. In the Czech Republic they grew rapidly
by over 15 percent in the 1990s, though remained just 1.5 percent of its energy
sources.
CLIMATE CHANGE DRIVER
Analysts say environmental concerns are likely to act as a bigger driver
of energy investment than high fossil fuel costs. European Union countries are
increasingly looking at wind and nuclear power, given commitments to reduce
greenhouse gas emissions under the United Nations Kyoto Protocol on climate
change.
But experts say much government research spending is still focused on
nuclear fission and hydrogen fuel cells, which could both provide electricity
without harmful emissions but remain years away from commercial viability.
"In terms of R&D, for things that would be really useful, such as marine
power, my impression is that very little is government money," said Steve
Sawyer, climate policy director of Greenpeace. "A guaranteed power price is the
key thing," he said.
"Where most OECD countries get hurt (by high oil) is on liquid
transportation fuels, but the most viable technology is on the electricity
side," Sawyer said.
Biodiesel made from vegetable oils or ethanol is seen as having the best
prospects in economies reliant on imported oil, but green fuels remain some 50
percent more expensive than petrol. Oil companies and vehicle manufacturers are
also researching fuel cells, though costs to produce and store liquid hydrogen
are high.
Despite record profits from surging crude prices, oil majors with
investments in renewables such as BP and Shell are not boosting funds for
research or oil exploration, preferring instead to buy back shares or pay
dividends.
In any case, analysts say public funding is the key to growth in
renewables.
"In all cases, the advancement of renewables has been spurred by strong
government policies designed to nurture nascent energy industries and to create
demand for these technologies, often in markets dominated by mature, heavily
subsidised fossil fuel and nuclear power," said Washington-based research group
Worldwatch Institute in a recent report.
GOVERNMENT MIND-SET
Analysts said there were few signs that governments were acting on the
implications of higher oil prices for economic growth and for energy security.
U.S. presidential candidate John Kerry has said he would increase
spending on biofuels, clean coal technology and energy efficiency to reduce
dependency on foreign oil. In Europe wind power is most likely to see further
growth, since generation costs are more competitive with gas than other
renewables.
"People are not fully recognising how valuable the fixed-cost nature of
renewables is. Wind gives you price certainty," said Shimon Awebuch, economist
at the University of Sussex. "No-one notices the loss of GDP growth (from high
oil), but to invest in renewables you need to write a cheque."
Awebuch said that adding renewables to the electricity generation mix
would raise costs but reduce the risks from future oil price spikes. He said
nuclear fuel had some correlation with oil costs, while biomass fuels were also
commoditised products.
"The main gain of a switch to renewables is long-run security. And
nothing is more capable of deflating economies than oil price spikes," said
Warwick's Oswald. "But I don't see any change in western government priorities.
We'd need politicians and businesses to think there is a crisis."
Story by Neil Chatterjee
Story Date: 2/9/2004
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