A sector that has been going through many recent changes is the energy sector. Even before the never-before-seen negative oil prices caused by coronavirus, the state of the energy sector was being questioned. Every time circumstance or supply has driven down oil prices in the past, it has undermined the shift towards greater renewable energy use. Many are speculating that this time it is different.
The Usual Pattern vs the Current Situation
Usually when oil prices drop it pushes oil companies to use natural gas which undercuts the affordability of electricity from wind and solar power. If oil companies are not doing well, it cuts the spending they have available to invest in renewable energy. And when oil prices drop, it stalls the advancement of renewable energy because low oil prices undermine the usual reality that electric cars are cheaper to run than internal combustion engines.
This time is different.
The price of solar and wind power has become more competitive and more scalable over time, with the cost of solar energy now being a tenth of what it was ten years ago, it is now below the price of coal and nuclear energy in the US (insert 3, 9). Due to coronavirus’ affect on the price of oil, it is no longer true that oil provides greater returns than renewables and that means that crude oil no longer controls the energy market and therefore the price of electricity. The limit of solar and wind energy has always been their intermittence; it is not sunny at night-time and it is not always windy. However, the advances made in the storage of energy due to the lithium-ion battery are making these renewables more reliable because a store of energy can be relied upon through the fluctuations of supply. These advancements in technology that have reduced the cost of lithium-ion batteries, will increase the demand in renewable energy as this system-level flexibility makes it more feasible to go completely green. In fact, this storage could make renewable energy more reliable than oil, as shown by oil’s volatility in the last six years.
The drop in oil prices this year represents the largest ever decline and projections say that it could take up to two years for the price to return to the pre-coronavirus levels. Limited travel allowances will slow the recovery of jet fuel and a possible recession, guaranteed redundancies and reduced manufacturing as industries wait for supply chains to recover will all delay the bounce-back of oil. The second wave of coronavirus will further prolong the standstill.
The bottom line is that demand for energy is increasing and fossil fuels are running out. The technological and economic barriers that have allowed this fact to be ignored in the real world are being broken down. The pandemic has applied greater pressure for governments to diversify energy investments and greater investment in renewables will lead to greater protection for those investments to provide great returns.
A Move from Centralised Power Stations?
The National Grid and other centralised electricity delivery systems have been relied upon since the 1990s, however increasingly microgrids and smaller power producers are cropping up, especially in Africa and India where there is an ever-increasing demand for energy. In these areas of the world, there could be whole villages running off the roof solar panels of one building connected to an energy storage unit. The construction of energy storage units will now increase and could be seen as putting electricity directly into the hands of the people, the consumer.
Will Transportation Be Powered by Electricity?
Electricity is powered by natural gas, a bit of coal and a few renewables but the transport system is exclusively run on crude oil: petrol, diesel and jet fuel, a proportion of which is imported. Global pandemics being on the public psyche could lead to a shift towards domestic production of all energy, not just electricity, reducing the import of oil and transport being tied to geopolitics. If transport is no longer tied to geopolitics or global oil supply, it would benefit the consumer as the price of fuel will be more constant if produced domestically. Just like electricity prices, fuel prices will not fluctuate depending on what is going on in the world. So, what resource could power cars in the event of reduced oil imports? Electricity.
Will We Ever Get Rid of Natural Gas?
Coal is being phased out- in the UK, coal power stations are shutting down due to a 2025 ban and now, according to the Guardian, coal produces less than 1% of the UK’s electricity. However, a future without natural gas, the fossil fuel that is the most widely used is not yet on the cards. It is a great resource to produce electricity from and with demand for electricity increasing as we move towards an even more digital world, it may make sense to keep natural gas on the cards. Even in green legislation like the Clean Air Act, coal has been targeted, making it more expensive, but a shift towards natural gas has been encouraged. This could possibly be a compromise between the government and the energy sector, but one could that the continued encouragement to use natural gas could have lasting effects as it will not completely decarbonise the energy supply. Also, its worth stating that any steps legislation has made to slow climate change is positive.
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