22 May 2008

Clean Tech: Alternative Energy Execs Dream Of Oil Crunch (Reuters)

Gerard Wynn of REUTERS NEWS SERVICE writes from London that "while most companies are watching soaring oil prices with an eye on rising costs some renewable energy executives are licking their lips at the prospect of 'spectacular' growth."

Here's the article:

"Oil sped above $135 to a new record for a third straight day on Thursday. That and new forecasts of a higher floor price has some alternative energy suppliers dreaming of an era of peak oil when global crude output starts to fall.

"'Our time is very definitely coming,' said Jeremy Leggett, chairman of British solar power company Solar Century and former environmental campaigner. 'The world is going to be beating a path to our doors ... The oil crunch is coming soon. The drivers are going to be spectacular.'

"Thursday's record oil price knocked world stocks to a one-month low as concerns grew that rising raw material costs would hit companies and consumers in an economic slowdown.

"In their latest rally since May 1 oil prices have risen 20 percent. In that time the MSCI index of the world's biggest stocks is up 1.5 percent, while a ABN AMRO index of renewable energy stocks has climbed 9.5 percent.

"But support for renewables has been jittery after months of hype helped fuel valuations at a time of tight credit.

"In particular, solar power stocks dived as much as 50 percent in January as investors feared that a credit crunch would make 'big ticket' solar panels unaffordable and that over-capacity in the sector could swamp demand.

"'There's obviously been underlying concern in the renewable energy markets that valuations are inflated, (asking) are we in the middle of a green technology bubble,' said Merrill's head of carbon emissions trading Abyd Karmali.

"'Drivers in the oil market leading to higher oil prices, as well as expected more sustained carbon pricing... lead us to suggest that actually alternative energy is going to be commercially viable sooner than people anticipated.'


"But even $135 oil is not enough to make all alternatives competitive, said the Chief Economist to the International Energy Agency, Fatih Birol, on Thursday -- using the example of electricity production from the sun called solar PV.

"'We need to see a lot of reduction in the cost of PV.'

"Solar power executives said at a conference hosted by Greenpower on Wednesday that an expected glut in capacity -- to 29 gigawatts of solar module production in 2012 from 3 GW in 2007 according to consultants McKinsey -- would slash prices.

"The solar power industry uses expected year on year increases in power prices -- as a result of soaring oil and gas prices -- to try and plot when solar power without subsidies will be the same price as conventional electricity.

"McKinsey's Christer Tryggestad said such grid parity may be reached as early as 2010 or 2011 in Italy and California.

"But at current oil prices wind has already reached that point, said the IEA's Birol.

"'Many many projects which are on good sites become profitable versus gas,' he said.

"Ad van Wijk, chief executive of Netherlands-based renewable energy project developer Econcern, said wholesale power prices had trebled in the past two years -- as a result of soaring oil prices -- making his on-shore wind projects competitive with natural gas on windy sites, without subsidies.

"'It's the high oil price and especially the outlook that they will not go down,' which means he can get high wholesale prices now, said van Wijk.

"Analysts and industry officials have predicted for decades that the world's oil output may soon plateau but oil companies have downplayed the 'peak oil' theory. BP data suggest the world has proven oil reserves of 1.2 trillion barrels, enough to sustain current output for 40 years.

"Nevertheless, oil firms are using higher price assumptions to plan their businesses, in a sign the forecast floor price is moving up, oil analysts say. BP is using $60 a barrel, for example, while just a few years ago companies assumed long-run prices of $25."