
Why clean energy is now expanding even when fossil fuels are cheap - prostoalex
https://www.washingtonpost.com/news/energy-environment/wp/2016/01/14/why-clean-energy-is-now-expanding-even-when-fossil-fuels-are-cheap/
======
IkmoIkmo
Because it's mostly oil that's cheap, and barely any of it is used to generate
electricity (electricity being the key industry of renewables). Coal and gas
is down, too, but not nearly as much, and don't have a long-term low-cost
forecast as strongly as oil does right now.

Further, despite the green-energy rhetoric (which I'm largely supportive and
in favour of, despite it being a bit disingenuous sometimes), renewable
subsidies are huge, or at least have been as of late.

Further we're seeing wall street come in with securitisation of renewables,
making it a bit easier for renewable companies to finance everything. At the
end of the day, you can't be disruptive without capital in a capital-intensive
(energy in general, including renewables, have large startup costs) industry.
Securitisation allows relatively new entrants like solar city raise financing
essentially by factoring 20 years of utility bills, without having to sell out
the company.

Beyond that, renewables are still tiny and if they weren't growing like they
do, it'd be pretty strange tbh.

And lastly... they're really getting cheap, and at some point there's a
threshold moment you cross.

~~~
wnevets
>renewable subsidies are huge, or at least have been as of late.

relative to what? Fossil fuels in the US still get huge subsidies.

~~~
wsc981
I think parent is European, perhaps Dutch even (judging by his post history).
Here in Europe I don't think fossil fuels are subsidised.

~~~
Symbiote
The UK certainly subsidizes fossil fuels.

[http://www.theguardian.com/environment/2015/nov/12/uk-
breaks...](http://www.theguardian.com/environment/2015/nov/12/uk-breaks-
pledge-to-become-only-g7-country-increase-fossil-fuel-subsidies)

'A spokesman for the Department of Energy and Climate Change said: “We are
committed to meeting our decarbonisation targets – we’ve made record
investments in renewables and are focusing on lower-carbon secure energy
sources, such as nuclear and shale gas. However this will not happen overnight
- oil and gas will continue to play a role so we can ensure hardworking
families and businesses have access to secure, affordable energy.”'

~~~
Lazare
Keep in mind that there's a lot of spin and misleading statements made in this
area. The article repeats the words "tax break" over and over, but it never
actually explains what this means.

But if you Google the actual change being discussed:

"Effective tax rates on production from older oil and gas fields will be
reduced from 80pc to 75pc immediately, and backdated to january, while on
newer fields it will be cut from 60pc to 50pc, Oil & Gas UK, the industry body
said. The changes serve to entirely reverse the tax grab on the sector in the
Chancellor's 2011 budget."

Or to put it another way, the UK taxes newer oil fields as 50%, which is a
horrible subsidy compared to how they taxed it two years before that, but no
change from how they taxed it before _that_. And in general the UK has (even
after the change) some of the highest taxes on petroleum production in Europe.

Question: If the UK has above average tax rates, does that mean it has no
subsidy at all? Or is there some "natural" tax rate and any deviation from
that is a subsidy? Does it even make sense to call the way you set the amount
of money you take from someone a "subsidy"?

~~~
ZeroGravitas
I always assumed this tax/subsidy was to account for the fact that the oil/gas
belongs to the country. In that framing, giving away natural resources below
market rates is a definite subsidy.

~~~
Lazare
> In that framing, giving away natural resources below market rates is a
> definite subsidy.

So...what's the "market rate" for taxes on a new well in the UK's territorial
waters in the North Sea? Given that the UK has a monopoly on allowing wells to
be drilled in that area, isn't the market rate whatever the UK says it is, and
thus there is always zero subsidy by definition?

Or should we compare to what other countries charge for other wells in other
areas? Should we adjust for, eg, the difficulty of drilling in the North Sea
compared to, eg, off the coast of Brazil and if so, how? Should we only
compare to EU countries, or only to rich countries, or do we compare to
everyone? And if, as is the case, the UK has relatively high taxes compared to
others, in what way would it be accurate to call it a subsidy?

------
barney54
The article is a bit misleading with it's focus on "generation capacity" as
opposed to "production." Consider the situation in the U.S. The latest data
shows that natural gas increased it's share of electricity generation from 27%
to 32%. Solar increased from 0.4% to 0.7%. Wind held steady at 4.3%.
[http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf](http://www.eia.gov/totalenergy/data/monthly/pdf/sec7_5.pdf)

Yes there's a lot of spending on renewables and they are building a lot of
capacity, but that overlooks actual generation.

~~~
josefresco
Still...

"Overall, the addition of 121 gigawatts of solar and wind globally (also a
record) means that roughly half of new electricity generating capacity
installed last year was in these two technologies."

Also, Biomass = 1.7%

------
pm90
When considering investments in power generation, the price of coal/natural
gas is likely a better indicator than the price of oil. And it does seem like
the price of both have been decreasing.

Its highly likely that the investments that happened in 2015 were planned
before, when the the prices were higher.

~~~
jessriedel
Your comment and barney54's comment pretty much invalidate the interpretation
offered by the author.

------
legitster
I wish some politicians would take note: Right now is a perfect alignments of
the planets for a carbon tax. Get on it before the window closes.

~~~
mac01021
What is the coming event that is going to close the window?

~~~
legitster
In the short term I would worry about consumers adjusting to the lower prices
and start buying more gas guzzling vehicles. In the long term, once the supply
glut for oil is over the prices should normalize. Right now oil producers are
basically playing chicken to see who can outlast the others, but I would
expect prices to creek back eventually as the competition clears out.

~~~
nickff
How confident are you in this belief? Are you shorting a diverse set of oil
company stocks and/or buying oil futures, or just posting on the internet?

~~~
_yosefk
I don't know if a guy "putting his money where his mouth is" is more or less
trustworthy than a guy who isn't:

* If I have a position, I'll want to convince everyone that I'm right because _it 'll make me right_ (if everyone thinks energy stocks are worthless, they will be.) That's why most people with lots of skin in the game, long or short, are very happy to publicly argue that their bet is correct.

* Someone very risk-averse can think, correctly, that he's likely right, but loathe the 10% probability to lose money. Conversely, someone can be near-addicted to gambling and make bets based on very little, or someone can just be wrong regardless of their risk preference.

Overall, a random commenter's arguments seem more interesting to me than their
claim to have bet on being right, even if I trust this really hard to verify
claim.

~~~
nickff
Prediction markets work much better than polls. This is because those who know
are willing to bet on it, and those who do not are (rightly) reluctant.[1]
Some such as Tetlock have (plausibly) claimed they can do even better than
prediction markets, but not by listening to random commenters with no skin in
the game.[2]

TLDR; Talk is cheap, and people are much more careful with their wallets than
their mouths (or keyboards).

[1]
[https://en.wikipedia.org/wiki/Prediction_market](https://en.wikipedia.org/wiki/Prediction_market)

[2]
[https://en.wikipedia.org/wiki/Philip_E._Tetlock](https://en.wikipedia.org/wiki/Philip_E._Tetlock)

~~~
_yosefk
Well, prediction markets do better than polls, but actual financial markets
are in part prediction markets and they do pretty badly at times and sometimes
there's a guy who calls a bubble long before it pops. And that guy doesn't
necessarily stake a huge fortune on that prediction. So yeah, talk is cheap,
and yeah, on average people are more careful with their wallets than their
mouths, but on the other hand, people sometimes have interesting things to
say, and asking how much money they bet on being right is less interesting to
me than asking how they arrived at their conclusions. Now in some cases I will
ask someone how much money he'd put on being right, but I'll do that when I
think they're either wrong or fairly uninformed and yet very opinionated.

------
mtgx
Saudi Arabia must think that if it can only hold oil prices low for a few more
years, its competition will be wiped out and then it can go on selling even
more oil than it does now and for $100/barrel, too.

It's going to be in for a rude awakening in a few years when it tries that,
because by then EVs will almost achieve critical mass, and once it tries to
raise the prices, the EV sales will only accelerate. This is even more true
for solar power, as I think we've already passed critical mass and there's no
stopping its growth.

------
lettergram
When I saw the title, my first thought was:

"Because fossil fuels won't always be cheap, and will be gone in a couple
hundred years"

It seems pretty obvious that renewable energy is going to be the way of the
future, so of course there will be large investments in it.

This really isn't surprising either, because "clean energy" doesn't usually
pollute the air (as the article pointed out).

~~~
Eric_WVGG
From a money/self-interest perspective, most of the fortunes in carbon have
already been made. The people who get rich off renewables today will be
creating new dynasties.

~~~
brockers
That was the general wisdom back in the late 70's but the reality now is we
have found WAY WAY more carbon based fuel sources than we ever thought could
be captured. Updated global estimates for oil are somewhere between 50 and 250
years and most estimates (other than those by left leaning not for profits)
estimate 100 to 180 years worth of coal.

~~~
Eric_WVGG
No I get that but nobody is going to get on the ground floor of oil. Remember
the old James Dean / Rock Hudson “Giant”? or “There Will Be Blood”?

------
beatpanda
Another part of the equation is the efforts of companies like mine,
Genability, that are working to drive down the "soft costs" of clean energy.

If you want to help create software to make clean power cheaper, you should
join us -- we're hiring:
[http://genability.com/careers/work_with_us.html](http://genability.com/careers/work_with_us.html)

~~~
mooreds
Cool company and concept. Wish you allowed remote work. Oh well. Best of luck!

------
systems
is it posssible fossil fuels are becoming cheaper because clean enegery is
expanding

~~~
toomuchtodo
No, the two are disconnected.

Oil is getting cheaper because the House of Saud is attempting to drive out
frackers in the US. Jokes on them though: That oil is always going to be
profitable around $50-60/barrel. Once the Sauds lower production to raise the
price of oil back up, frackers will fire right back up. It'll take 12-18
months, but it'll still happen. Almost no one burns petroleum for electricity
mind you (nat gas, yes, but not oil) except Hawaii and parts of Alaska, and
they're moving as fast as possible to renewables because of price spikes that
occur occasionally.

So you're going to see this seesaw effect. Oil shoots up, more oil comes onto
the market, oil goes back down, etc.

Renewables. Oh how I love me some renewables. There's this legislation, the
production tax credit [1]. It generously subsidizes the installation of
renewables in the US. There's always been this quagmire though, as Congress
would only extend it 1 year at a time (hard to plan capital expenditures worth
billions when the legislation you're relying on is always up in the air).

But things changed in December of last year. At the end of 2015, in a landmark
deal, Congress extended it for _5 years_ , and in return, the US lifted export
restrictions on crude oil. That means that solar and wind is going to roll out
faster than ever. Natural gas will push out the remaining 30% of coal fired
generation in the US, and wind and solar will fill the gaps (this is good;
natural gas is cleaner, and produces much less CO2 per MWH produced). As more
wind and solar comes online, along with utility scale battery storage, we'll
reduce our reliance on natural gas (protip: don't invest long-term in
generators who own substantial nat gas generation assets).

China is deploying wind at an astonishing rate, faster than even nuclear [2].
They're heavily subsidizing electric vehicles now as well [3]. The price of
coal is plummeting (which is good!) [4]. The best case scenario is whatever is
left of it is left in the ground.

If you can afford it, elect to get renewables from your utility. The premium
should be ~1-3 cents/kwh. If you can afford to get an electric car, and it
makes sense for your lifestyle, do so. If it doesn't, use a carshare program.

Collective effort can change the status quo.

[1] [http://energy.gov/savings/renewable-electricity-
production-t...](http://energy.gov/savings/renewable-electricity-production-
tax-credit-ptc)

[2] [http://www.earth-
policy.org/data_highlights/2015/highlights5...](http://www.earth-
policy.org/data_highlights/2015/highlights50)

[3] [http://www.ibtimes.com/chinese-consumers-bought-
nearly-300-m...](http://www.ibtimes.com/chinese-consumers-bought-
nearly-300-more-electric-cars-year-compared-2014-2222591)

[4]
[https://www.quandl.com/collections/markets/coal](https://www.quandl.com/collections/markets/coal)

~~~
krschultz
I agree with your facts but disagree with your assessment. I believe that the
drop in clean energy prices is what drove the crash in oil prices.

The reason the Saudis are trying to drive the frackers out of business is
because the Saudis no longer believe that we're going to get all the oil out
of the ground before clean energy takes over. Previously they were fine
cutting their own production in order to maintain a particular price because
they were certain that eventually ALL of the oil in Saudi Arabia would get
sold on the global market. If that took 100 years, that actually was even
better for them. If you believed in peak oil, then being the last one standing
with reserves actually would be awesome.

With clean energy beating projections it looks like we're not going to burn
every drop of oil in the Earth. Given that, the Saudis are no longer patient.
If they hold back their reserves to maintain a particular price it's very
possible we'll get off oil before we run out of oil. Thus the Saudis would
have left money on the table if they didn't shift strategy.

It seems like their new strategy is to extract every dollar they can for their
oil reserves. In the short term that means fighting off the frackers, but the
broader picture looks like a race to the bottom for all oil producers.

The good news is I don't think we're going to burn all the oil on Earth. The
bad news is low oil will slow down the rollout of clean energy because it
makes ROI worse.

~~~
barney54
Where is the evidence that renewables have driven the crash in oil prices?

There is only a tiny bit of competition between renewables and oil. In the
U.S. less than 1% of electricity is generated from oil. Oil is used as a
transportation fuel and electric vehicle sales have stagnated. (few EVs were
sold in 2015 than in 2014 in the U.S.
[http://insideevs.com/december-2015-plug-electric-vehicle-
sal...](http://insideevs.com/december-2015-plug-electric-vehicle-sales-report-
card/))

------
entee
Obviously more expensive carbon-intensive fuels favors renewables, but I
wonder what the threshold is to really give a long term incentive for
innovation.

For a lot of renewable energy technologies, the biggest problem is operating
at a large scale. It's fine to show something works in a lab, but will it work
at 1,000x, or even 10^6x scale? You can't figure that out without building it
at that scale, and you can't build it at that scale unless the probability of
the investment paying off is high enough. In practice, having some confidence
that you'll be somewhat price competitive through some mechanism (subsidies,
favorable tax treatment etc.) over the long term.

All the technologies mentioned in this article are to a first approximation
old, and are doing well because they've become cheaper. The real problem here
is for next-generation technologies which need to be demonstrated at
industrial scale.

~~~
neltnerb
If I recall correctly, the major difficulty currently is stable financing. The
latest budget did a great deal to assist this according to reports (I have not
read the budget myself).

It's really tricky to deal with the finances when capital costs are huge but
operating costs are minimal. Once the plant is built, the low marginal cost of
production drives prices down to levels that make roi complicated.

~~~
entee
True, but the marginal cost of oil is cheaper still, and when building a new
plant it's even easier to have massive cost overruns due to unforeseen
complications in building the plant.

As an aside: someone in the oil industry once told me that to a first
approximation the marginal cost of a product coming out of a refinery is
inversely proportional to the mass in metal of that refinery. The bigger the
refinery, the less it costs to produce once it's built.

If this is true, then demonstration-scale plants face an even bigger hurdle,
because they're in a sort of valley of death of efficiency, not big enough to
be cost competitive down the line, but too big to be a (relatively) low-risk
investment.

~~~
neltnerb
Your friend in the oil industry is probably assuming that the products are
fairly high value, which is pretty much guaranteed versus the value of
electrical energy. Minimum approximate price for anything is the value of the
energy you get by burning it, doing essentially anything else will result in a
much higher value product.

The costs would be (first order) feedstock + O&M + capital amortized. For a
chemical plant, the feedstock is irrelevant not because it's cheap compared to
the value of the energy you get from burning it but because the difference in
price between the product and feedstock swamps the O&M + capital costs. What
bigger plants do is decrease O&M and decrease capital (per unit capacity), but
they can do nothing to decrease the feedstock price...

If a barrel of oil is $50, a barrel of oil equivalent is 6.1 GJ, so if we
translate to the weird US units we use it's just under 3 cents per kWh if
conversion were 100%. In practice efficiency is closer to 45%, which I'll call
half, so the 2x gets you to an absolute minimum cost of around 6 cents per kWh
for oil electricity generation.

That's including no wear and tear, no capital costs, and no staff to keep an
eye on things. This is the absolute thermodynamic floor on the cost of oil
based electricity, with the plant size getting bigger at best driving the
price to 6 cents as O&M and capital costs are driven to a smaller percentage
of the total costs (i.e. O&M + fuel).

For comparison, look at figure 44 of this report:

[http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-
Tec...](http://energy.gov/sites/prod/files/2015/08/f25/2014-Wind-Technologies-
Market-Report-8.7.pdf)

and you can see that the median marginal cost (i.e. operations and
maintenance) of wind power is ~0.8 cents per kWh ($8/MWh).

So I stand by my claim that the marginal cost of wind power is much lower than
the marginal cost floor for oil base electricity. Chemicals just have a
different first order approximation due to very different margins.

------
Spooky23
Maybe the lack of volatility in pricing is a big factor?

I know for me, swings in natural gas prices for heating is a real drag. One
year I pay $500/mo, one year $150. Making a big capital investment with high
fixed or financed cost would be awesome if I could do it.

~~~
ArkyBeagle
You should not see swings that big at the retail level. I'd say whoever your
supplier is isn't very good at managing price contracts.

------
Animats
_" The addition of 121 gigawatts of solar and wind globally (also a record)
means that roughly half of new electricity generating capacity installed last
year was in these two technologies."_

That's impressive. Much of that is in China, which is adding capacity. The US
and EU have about as much generating capacity as they need.

------
jheriko
The things I find much more interesting is why we expect the opposite, and the
nature of the political mess that stops us from using the best clean energy
solution we have.

I'm convinced the only real problem here is keeping people happy in a really
superficial way.

------
tgb
So did the article answer the question lithe than a passing remark that they
were getting more cost effective?

------
ape4
renewables: pay once. fossil: pay per barrel.

~~~
barney54
Not true. If you want to have electricity, only when the wind blows or only
when the sun shines, that is true. Otherwise, you need thermal (coal, nat gas,
nuke) generation to produce electricity when you want it.

~~~
greendesk
Not 'Not True', if you don't mind my double-negative.

I can have some electricity from renewable sources and some electricity from
your selection of thermal (coal, nat gas, nuke). This results into an energy
mix, not a binary value of renewable-vs-thermal.

Even if a renewable sources are predictably intermittent, they can still play
a positive role in an energy mix setting.

Furthermore, this role can be very valuable from an investment point. For
example, one pays for installation of solar arrays and gets some electricity
every day until its life cycle expires. It might not reach 100% of one's
consumption - but there is some electricity every day. Compare this to
constructing a thermal power plant - who knows what its operating costs will
be 20 years down the line.

------
dietlbomb
Because clean energy and fossil fuels fill entirely different demands. Fossil
fuels (and nuclear and hydro) supply useful energy. Clean energy (apart from
small niche uses) does not. The demand for fossil fuels is driven by the
demand for energy. The demand for clean energy is driven by politics.

------
k__
I think it's the logical next step for every western country that has the
technology.

Russia and the Arabs are considered "the devil", so why give them money for
stuff you can do yourself?

"But we're also outsourcing our food and tech production?!"

Yes but people to do cheap work are everywhere, if China stops "selling"
cheap, we can go to the next country. Oil and Gas isn't everywhere and even if
it was, it wouldn't be there forever.

