Oil price drop could propel US solar and renewables, finds BNEF report

Since petroleum prices began their slide last summer – falling in tandem with many publicly traded solar stocks – numerous equity research analysts, energy economists, solar executives, consultants and journalists have detailed why this coincidence fundamentally makes no sense in most markets given the weak link between oil and the electricity prices against which solar power competes.

This is especially true in markets such as the U.S., where, according to the Department of Energy, oil makes up a miniscule 1% of the mix. But this is also true across most of the world, since oil accounts for only about 5% of global electricity supply, according to the International Energy Agency (IEA).

A new report released today by Bloomberg New Energy Finance and The Business Council for Sustainable Energy goes even further in challenging the irrationality of investors by observing that low oil prices could stimulate the renewable energy market in the U.S., rather than burden it.

"There is no direct link between oil prices and most sustainable energy technologies in the U.S. Most of those technologies play a role in the power sector, whereas oil is mostly used for transportation and only rarely for power in the U.S.," notes the report, adding: "Nevertheless, there may be ‘second-order’ impacts from the oil price turmoil. The drop in cost of oil could serve as an indirect stimulus into the U.S. economy, which could propel even more use of natural gas and renewable energy."

Michel Di Capua, BNEF’s head of research for the Americas region, explains. "Consumers have more money in their pockets. Maybe the industry can get a boost."

In fact, AAA estimates U.S. motorists already saved $14 billion in 2014 and could save as much as $75 billion at the pump this year. Assuming an installed price of $3,000 per kW, that amount of gasoline savings in 2015 theoretically could purchase around 25 GW of PV – more than the country’s current total installed solar capacity.

But even if only a small fraction of American’s gasoline savings were diverted to purchases of solar electric systems, the impact could be significant. For example, just 4% of AAA’s projected savings at the pump this year could buy 1 GW of solar – and supply enough power to cover the needs of an estimated 750,000 to 1 million American homes.

BNEF’s report, Sustainable Energy in America: 2015 Factbook, covers trends renewable energy, energy efficiency, natural gas transportation, policy and finance through the end of 2014.