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Why Solar and Wind Are Thriving Despite Cheap Fossil Fuels
By Wendy Koch
PUBLISHED JANUARY 22, 2016
Low oil prices are rattling stock markets, but investors remain bullish on solar, wind, and other clean
energy. Here are three reasons why.
Wind turbines provide energy for the residents of Samso Island, a Danish island that gets all its power
from renewable sources. PHOTOGRAPH BY ANDREW HENDERSON, NATIONAL GEOGRAPHIC
CREATIVE
The prolonged plunge in fossil fuel prices is rippling across the globe. Yet it’s barely put a dent in the
booming market for clean energy, heralding perhaps a new era for wind and solar.
Oil prices of less than $30 a barrel—the lowest in 12 years—have shaken stock markets and ravaged
the budgets of major producers such as Russia and Saudi Arabia. Along with falling gas prices, they’ve
slashed the profits of fossil fuel companies, which are delaying dozens of billion-dollar projects and
laying off thousands of workers.
In Texas, home to shale-rich oil deposits, once-crowded trailer parks that housed workers are now
largely empty.
But solar, wind, and other clean energy? They’re expanding. Last year, they attracted a record $329
billion in investment—nearly six times the total in 2004, according to a report this month by
Bloomberg New Energy Finance or BNEF. Wind and solar also installed a record amount of power
capacity.
The clean energy revolution is not entirely immune to cheap oil, which has lowered prices at the
pump. In the United States, where gas prices are now below $2 a gallon in many places, sales of SUVs
rose last year while those for electric or fuel-sipping hybrid cars fell.
“We’re not saying there’s no impact, but we’re not seeing a significant impact yet,” says Angus
McCrone, BNEF’s chief editor. “There’s a lot of momentum behind clean energy.”
He and other experts explain why:
1. Prices have fallen as government incentives have risen.
Oil and gas may now be a lot cheaper than a few years ago, but solar and wind are cheaper, too. Since
2008, according to U.S. government data, prices have plummeted 60 percent for large-scale solar,
and 40 percent for wind.
Solar and wind are “competitive in many countries,” says Alex Klein, senior research director of
renewables at IHS Energy, a research firm. He notes they don’t compete much with oil, used mostly
as a transportation fuel, but they do compete with natural gas, often used to power plants that
produce electricity.
Despite low natural gas prices, solar and wind accounted for 60 percent of new U.S. power capacity
last year and will likely account for 70 percent this year, says Marlene Motyka, U.S. alternative energy
leader at Deloitte.
Such competitiveness is new. “The last time oil was at this price, the cost of renewables was much
higher,” says Jonathan Grant, director of the climate change team at PwC (also known as
PricewaterhouseCoopers.)
Their economics could improve. “For renewables, particularly solar, substantive improvements in cost
and efficiency are not only possible but likely,” writes Sott Nyquist, director of McKinsey & Company's
Houston office. In contrast, he says, coal is facing steeper costs partly because of tighter U.S.
regulations, and gas is already using technologies that are highly efficient.
Solar and wind got a huge boost in December, when the U.S. Congress renewed their tax credits for
another five years. BNEF expects this extension will add an extra 20 gigawatts of solar power—equal
to the total amount installed via solar panels in the U.S. prior to 2015.
2. Demand has expanded, driven partly by public policy.
Countries are looking to renewable energy to meet the pledges they made as part of the UN climate
accord last month in Paris. They agreed to cut the carbon dioxide and other greenhouse gases that are
emitted when oil, gas, or coal are burned.
Some, such as India, also see renewables as a way to reduce their severe air pollution. China is cutting
back its use of coal, the dirtiest fossil fuel, even though it’s cheap.
Developing countries in Africa, where many people don’t have access to a central power grid, are
pursuing solar projects as a quicker and less costly way to provide electricity. Wealthier countries are
using solar to create microgrids that can keep the lights on when storms like Hurricane Sandy knock
out the central power grid. Even college students are designing solar-powered homes that can provide
backup power in their neighborhood. (Check out what such a home looks like.)
States and local governments are pushing low-carbon or carbon-free energy alternatives as well. In
the U.S., dozens of states now require they account for at least a certain amount of their electricity. On
Thursday, New York Governor Andrew Cuomo announced his state will spend $5 billion over a
decade to promote clean energy. Hawaii has pledged to get all its power from renewables by 2045,
Vermont has pledged to get 75 percent by 2032 and California, 50 percent by 2030.
I don’t see businesses stepping back.
Marlene Motyka
3. Corporate and investor support is strong.
Companies are making similar pledges. The Paris climate summit prompted a “tipping point” in
corporate support, says a report this month from Influence Map, a nonprofit based in the United
Kingdom. The report says more than half of the world's largest companies now back steps to cut heattrapping emissions and a third support putting a price on carbon.
“The corporate side is here to stay. I don’t see businesses stepping back,” says Deloitte’s Motyka. In a
recent Deloitte analysis, more than 55 percent of companies report generating some of their electricity
on-site, 13 percent of which comes from solar panels or wind turbines.
Renewables are attracting capital. A recent study by Goldman Sachs says the combined market size of
low-carbon technologies—including wind, solar, LEDs, and hybrid or electric vehicles—now exceeds
$600 billion, about the size of the U.S. defense budget.
Investments are expected to rise. Some oil-importing countries, including China and India, have
saved money from low prices that they can invest in renewables. Even some oil-exporting countries
are investing in solar. Saudi Arabia, Russia, Iran and Kuwait are trying to curb fossil fuel use at home
so they can maximize profits for oil exports.
“Fossil fuels will be here for decades to come, but their share will fall,” says PwC’s Grant. Even in the
transportation sector, where oil is so important, he expects electric vehicles will eventually catch on—
but not because of price.
Consumers will see them as more “desirable,” he says, noting EV perks such as dedicated parking
spots and use of HOV lanes. Besides, he says they promise all sorts of self-driving and gee-whiz tech
features, adding: “They’re much cooler.”
The story is part of a special series that explores energy issues. For more, visit The Great Energy
Challenge.