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Will The Alternative Energy Industry Survive The Oil Price Crash? 30.11.08

Two years ago CarbonFree warned that companies exploiting the growing market for alternative energy should ensure their technology and services remain competitive, even if the price of oil fell as low as $30 per barrel.

In recent weeks the price of oil has eased. The overshoot in the price of oil that inflated the market for renewable energy is being replaced by an undershoot, based on anticipated energy price reductions. Householders who were considering installing renewable energy technology as a hedge against the rising cost, and potential scarcity, of fossil fuels are now shelving plans as heating bills fall. CarbonFree points out that the green building sector is particularly vulnerable as falling property prices have already made renewable energy technology look more expensive in relation to the total price of a property.

While CarbonFree sees the oil price stabilising at a level reflecting its true underlying value, it believes house prices will continue to fall - perhaps by as much as 70% of their 2007 prices. It points out, in a report on domestic energy microgeneration, that as well as the credit crunch cutting off the supply of finance for new houses in the short term, a shift in demographics could keep house prices depressed for over a decade. It predicts that as more elderly people move out of private houses into residential care there will be a shortfall in the number of young householders who want to buy the vacated properties.

CarbonFree regards developers with business models based on the construction of low cost sustainable houses as being particularly exposed at the moment - especially in the UK where the government is scaling back plans for ’eco’ housing developments.

Peter Kruger, founder of CarbonFree, who sponsored research into large scale solar energy schemes during the 1980s, believes the renewable energy sector is facing a crisis similar to the one it experienced 20 years ago. "The main difference today is that while in the 1980s the industry was in its infancy, today some key players have achieved the scale required to survive a downturn. Just as the Dot Com crash did not totally destroy the IT and communications sector so companies with robust business models will survive the bursting of the Green Tech bubble," explains Kruger, who goes on to state: "Just before the credit crunch triggered the current recession the global economy was experiencing problems caused by a shortage of energy and raw materials. A return to economic growth without sustainability is not really an option and any economic revival must also include an expansion of the renewable energy sector."

CarbonFree has produced reports that examine both large-scale and small-scale renewable energy generation markets and see both becoming realistic propositions if the technology can produce energy at the right price. The reports describe technologies and scenarios that would make this possible. At $30 per barrel of oil equivalent, given that renewable energy is cleaner for the consumer and has less environmental impact than burning fossil fuels, CarbonFree predicts that renewables would eventually displace most other incumbent energy sources.

Peter Shield

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