Increase in renewables pushes prices of conventional fuels down - Is it time to invest?

Increase in renewables pushes prices of conventional fuels down – Is it time to invest? Part I

This two-part series discusses how the market for renewable energy is forecast to grow, and whether this is limited in some way.

Is the use of renewables growing?

According to BP’s 2017 Energy Outlook by 2035 global oil, gas and coal will remain the top energy sources, projected to be 75% of energy supplies. However, their market share will be decreasing.

Renewables, plus nuclear and hydroelectric power, will be driving 50% of global energy supplies growth over the next 20 years. Overall, the fastest increasing energy sources will be renewable (7.1% p.a.), growing to 10% of the market by 2035.

Demand for oil will continues to grow (0.7% p.a.), although its pace of growth is expected to slow gradually. Coal is expected to decline after the mid-2020s. Overall the demand for energy is increasing fired by the developing economies.

Is there a limit for renewable growth?

The projections show that renewable will continue to grow, but it appears that where renewable output is advanced, there may be issues to solve in balancing the output with conventional sources.

The UK National Grid has to balance between installed power sources (for instance oil and coal-fired power stations, natural gas and shale gas and nuclear reactors), nationally owned alternatives, such as tidal power, wind farms and solar farms and also independent (commercial and domestic) wind and solar plants. Output from renewable sources can vary: often between 10~25% of capacity for solar power and 20~40% for wind.

In December 2016, the UK Parliament Economic Affairs Committee addressed questions about the economic viability of alternative energy sources.  A key issue was: Is there a limit to the amount of intermittent renewable energy the grid can manage? Ofgem, the gas and electricity market regulator, and National Grid, the UK’s electricity and gas infrastructure operator, gave evidence for its inquiry into the economics of UK Energy Policy.

The evidence is that independent power source output is now significant. In summer the combined output exceeds demand so special steps need to be taken to manage the overall output. At present, it is possible for countries to trade surplus output.

Keep an eye out for ‘Increase in renewables push prices of conventional fuels down – Is it time to invest? Part II’, where we will explain if renewable costs/benefits are better and if now is the time to invest.

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