Brent crude oil fell to a new five-and-a-half year low on Tuesday of approximately $51.12 per barrel, the lowest price recorded since 2009, as a result of Saudi Arabia dropping prices for European customers. Asian oil customers meanwhile saw an increase in oil prices.
Both the West Texas Intermediate Crude benchmark and the Brent indicator have seen prices fall by more than 50 per cent since mid 2014, with weak oil demand and surplus supplies expected to see prices plummet further.
This rapid deterioration in the price of oil is unlikely to affect the renewable energy industry because utility-scale clean energy plants are typically planned months or years in advance.
Fluctuation in oil prices can even serve as an advantage for the renewable energy industry, which can offer more stable pricing through power purchase agreements.
RenewableUK spokesperson Rob Norris told Clean Energy Pipeline: ‘Plummeting oil prices show just how unpredictable the global cost of fossil fuels can be – and the UK has no control over that volatility. It is one of the reasons why it makes more sense to make the transition from fossil fuels to renewables.
‘When you plan and build a wind farm, you know exactly what the costs are upfront, and the fuel itself is free, so we are insulating ourselves against the seesawing of global commodity prices, providing energy security for the UK.’
The United Nations’ climate chief Christiana Figueres said at the climate conference in Lima, Peru, in late 2014 that unstable oil prices are ‘exactly one of the main reasons’ that makes renewable energy, which has a predictable cost of fuel, comparatively appealing.
Costs are initially factored in by developers prior to construction and the award of project financing. PPA contracts then enable plant owners to set a price for the power output of a plant, leaving suppliers with knowledge of the cost of power upfront.
The ever-popular auction model for renewable energy is predicated on a pre-agreed price of power, which is locked in through contracts between developers and the tender host (typically governments or power suppliers).
While renewable power is increasingly sold into the spot market from unsubsidised plants, in Chile for example, a majority of renewable power globally is sold through PPAs or auction systems, and/or supported by subsidies.
Contracts for Difference, which comprise the new mechanism due to steadily replace the credit-based Renewables Obligation in the UK, are designed to insulate developers from price fluctuations by guaranteeing fixed-price contracts.
Forecasting the cost of power is particularly important for utilities in order to be able to set stable prices for consumers. UK energy wholesale market regulator Ofgem told Clean Energy Pipeline that so far, the drop in oil prices has had no discernible effect on retail energy prices.
‘At the moment there has been no change in prices for energy customers,’ spokesperson Chris Lock said. ‘One thing we have pointed out is you would expect suppliers to respond, but we have found the market is not competitive enough. Supplier wholesale costs are falling [but] we cannot force suppliers to lower prices when costs fall.’
This article originally appeared on www.cleanenergypipeline.com a clean energy news service operated by VB Research, a sister publication to The Engineer. The reporter, Jessica Mills Davies, can be reached at jessica.millsdavies@vbresearch.com.
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