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And indeed, oil costs less than it did in 2008 and 2012. And indeed, this is having a big economic impact. It means that Europe in 2014 saved around 1% of GDP, more than €100 billion, in import bills. A free and welcome boost.
But this column is not seeking to add to what Reuters has to say. It wants to offer two other perspectives.
First, forget the bluster; oil and gas are actually still expensive for Europeans. We do not ban exports like the US does and we do not have a cheap domestic supply. And high oil prices invariably go hand in hand with a weak dollar and a strong euro, and vice versa; today’s weak euro means oil looks cheaper in dollars than it does in euros. And the baseline matters a lot. The current Brent price of €52 a barrel is indeed 40% below the 2012 peak. But it is also higher than the average Brent price so far in the 21st century. Ten years ago, an €50 oil price prompted the European Commission to issue a five-point plan to deal with ‘current very high oil prices’. It’s all a matter of perspective, and memories are short, especially political ones. And importantly, nobody dares to say with confidence where prices will go. Betting on oil prices is a very risky business. Talking of gas, over the past decade German LNG prices have hovered between $8 and $12 per mmBtu without a clear trend to speak of. No revolution there either. If there is any revolution in the oil industry, it is that 85% of its investment is now going into three categories of risk oil: deepwater, Arctic, and unconventional.
And second, there is a real energy revolution going on that the big, mainstream media outlets are much more quiet on, but one that will have much more impact in a couple of decades’ time. It is the clean electricity revolution. Over the past decade, prices of solar (photovoltaic or PV) panels have dropped by around 90%. Records for the cheapest solar farm are broken almost every month, with a Nevada project going below 4 US cents per kWh for the first time in history, with 6 and 5-cent ceilings shattered all in the last calendar year. That is extremely cheap – much cheaper than any other new electricity generation option. It should not be a big surprise, then, that 80% of the electricity generation capacity Europe installed in 2014 consisted of wind and solar. And there is a universal expectation that prices will drop further; after all, we only get better at designing and manufacturing them. Broadly the same is true for batteries; a threefold price drop over eight years. And what does Google offer you when you type ‘PV price drop’? Greentechmedia.com, cleantechnica.com, nrel.gov and the like. Respectable outfits for sure, but household names? No, rather specialist.
So what’s the takeaway?
One is a classic: mainstream opinion is always way behind science and specialists, and vested interests capture more headlines than emerging ones and NGOs can – that’s one reason I write this piece.
Another is that the energy world is moving away from ‘resource energy’ and towards ‘technology energy’ (for lack of a better term). Resource energy – fossil and bioenergy – requires resources at the point of generation; these are typically burned. The resulting energy prices are a question of supply and demand of the resources and therefore unpredictable. Technology energy, like solar, wind, and tidal, hydro, does not use resources at the point of use. Technology always progresses so it will become only cheaper.
And that electricity is the clean energy of the future – one that transport should capitalise on. One or two more decades of solar price drops and we will wonder why we ever used other forms of energy.
We have now a unique and great occurrence where the economics in the real world are starting to overlap with what we environmentalists like to see. Now lets go out and convince everybody else this is the case, and do everything we can to accelerate this revolution. A smart electrification of transport is a good place to start.