The Sunvestment Energy Group Blog

Why Lower Gas Prices Don’t Affect the Economics of Solar

Posted by Ashley Paulsworth on Apr 10, 2016 8:30:00 PM

Lots of environmentalists and renewable energy proponents may be feeling a bit skittish about the low oil prices that have been in effect for over a year now. With prices hovering around $2.29 nationally, how are renewables faring?

If you follow us on Twitter or Facebook, you already know analysts are predicting 2016 will be another record year for solar installations, that solar has reached grid parity in more than 20 U.S. states, and that each quarter the industry breaks new records.

To understand why low oil prices don’t have a significant effect on solar prices, this chart from the US Energy Information Administration, which explains how we use various fuel sources for energy is helpful.  It turns out, only a very small percentage, about 1% of the total petroleum consumed in the United States, is used for electricity. In fact, most U.S. petroleum  (71%) provides 97% of the energy used in the transportation sector.

The majority of solar, on the other hand, goes to producing electricity, meaning there is very little competition between the two.

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Why is that?

Solar and petroleum are very different sources of energy. Gasoline is currently much more portable than solar, because it can be stored for use and can generate energy, through combustion as needed. This makes it a very good fuel source for vehicles that need to use energy in motion. On the other hand, solar energy is typically generated and used at the same time, which makes it a better source of energy for stationary structures, like homes or businesses. Since solar and petroleum are suited to different applications, the price of one has little impact on the price of the other.

It is also interesting to note that solar costs are more predictable.  Oil prices fluctuate based on supply and demand. When the market is oversaturated, the price decreases; and as supply dwindles, the price increases. Oil supplies are finite, unlike sunlight, which means prices are almost certain to rise again in mostly unpredictable ways.

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Other than a dwindling supply, the price for a barrel of oil depends on a variety of factors that have very little to do with actual production and distribution costs, causing prices to rise and fall at staggering rates unexpectedly.  The market for oil is also clouded with international discord, and because there is no real substitute for oil, there’s very little we can do about it. We have to drive to work, school and the grocery store, and to do that, we need to purchase gasoline.

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On the other hand, solar electricity costs are much more transparent and predictable. In fact, utilizing solar is one of the only ways to control your source of electricity and therefore gain more control over your costs.  While the weather can be unpredictable, the solar radiation that falls on a specific area year after year is generally very consistent. The National Renewable Energy Laboratory (NREL) keeps records all the way back to 1961, and these show fluctuations of only 1-4%. Since sunlight is fairly constant each year, you can be sure how much solar electricity you will generate based on the size of your array.

Knowing the fixed costs of the solar system, and the amount of electricity you will generate gives you the ability to lock in the price of that electricity for the next 25-30 years, depending on the life of your system. Imagine if you could lock in today’s gasoline prices for the next 30 years; that’s a deal almost anyone would take!

You can’t fix the cost of gasoline, because you can’t set up a rig and refine your own petroleum. But you can generate your own electricity at a fixed cost that is less than the expected rate of electricity over time  Using solar panels as your source of electricity puts the knowledge and control of your costs in your hands. And, as they say, knowledge is power.

Footnote: Solar energy storage has come a long way, and the future of solar continues to improve as battery technology becomes more efficient and economical. But for the moment solar PV is largely used to produce electricity, which does not compete directly with oil for a market base. Therefore, low oil prices may affect the purchase of electric vehicles, but not necessarily the purchase of solar panels.

Topics: solar pv, Solar for Non-Profits, impact investment, Gas Prices

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