Who’s killing renewable energy?
April 23, 2012
It’s been fascinating to watch the renewable energy sector over the last 5 years or so. As oil prices ramped up through 2007, renewables – particularly wind and solar – enjoyed modest reductions in production costs and substantial leaps in sales. This has plateaued recently, particularly with solar photovoltaics, and we’re starting to see substantial consolidation in the industry along with companies going out of business. The United States government has been particularly embarrassed as a few companies, including Solyandra, that received direct government subsidies from the US Department of Energy are among the casualties. Even German solar firms are against the ropes, with some sources blaming subsidies in those bankruptcies as well. Here in Vermont, at least one major wind turbine installation company has consolidated the turbine line-up it offers due to lack of demand.
It’s always risky to point to a single reason for such a radical industry shift, but we’d be lying to ourselves if we didn’t acknowledge that the drop in natural gas prices to around $2 per million British Thermal Units (BTUs) was playing a role. Natural gas prices were at record highs just 5 years ago, spiking up to $15 per million BTU. What brought the price down?
Fracking, which is shorthand for hydraulic fracturing, is an extraction process that involves forcing abrasive materials and caustic chemicals into an oil or natural gas well with explosive force to fracture subterranean rock that would otherwise not be porous enough for the oil or gas to flow through. If the oil or gas can’t flow through the rock surrounding the well we can’t extract it, so fracking opens a wealth of resource opportunities in areas where gas (and oil) are trapped in impermiable formations.
While fracking as an extraction process has been around since the 1970s, only within the past decade has there been a substantial push to commercialize it on a broad scale. At that, only within the last 5 years has it become important enough to influence resource prices by making meaningful amounts of new supply available to markets. I don’t see evidence that fracking is influencing oil prices yet, but it’s certainly behind the price slump clearly evident in North American natural gas markets.
Environmentalists focus on the environmental impacts of fracking, which are severe and include groundwater, surface water and air pollution as well as unusual seismic activity. I’m more concerned about the impacts of low natural gas prices on people’s willingness to invest in renewable energy. With natural gas prices so low, new electricity generation capacity powered by natural gas is far cheaper than new capacity from any other source (except coal), making renewables like wind, solar photovoltaic and biomass even less competitive than they had been before. For us to have any hope of a smooth, market-driven transition to renewables, we need to see non-renewables like natural gas, coal and oil rise steadily in price so the renewables become competitive, or at least more competitive then they’ve been in the past. Although coal and oil prices are still holding to upward trends, natural gas prices are falling through the floor. Combine these low prices with continued industry greenwashing that (mis)characterizes natural gas as ‘clean’ and you have a recipe for the death of the renewable energy industry.
On a more positive note, registration for my course on Energy Literacy is open. I’ve uploaded the introduction of the workbook that will serve as the ‘textbook’ for the course so people have a sense for what they’re getting into. The course that will meet at the Peace & Justice Center will be capped at 10, but the class that will meet at the Echo Center will be capped at 20. If both classes fill, I’ll look into starting a third. We’ll cross that bridge when we get to it, though.