Thursday, May 23, 2024

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Connecting Oil Prices to Renewable Energy

As of 2021, 79% of the energy consumed in the USA still comes from fossil fuels which include oil, coal, natural gas, and propane. The global drive for cleaner energy sources, however, has boosted investments in alternative renewable energy, including solar and wind power, nuclear power, and ethanol. Since the Chernobyl nuclear disaster in 1986, world enthusiasm for nuclear power has cooled, but many countries still rely on it as a primary source of power such as France, whichstill produces70% of its electricity in nuclear plants. At the same time, there is an ongoing movement to improve the overall safety of nuclear power, such as Bill Gates’ TerraPower.

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All the Energy Under the Sun

Solar power has long been heralded as the ultimate sustainable solution, however it actually doesn’t rely totally on natural resources, depending on back-up power from coal plants on cloudy days. It’s also more expensive than nuclear power, but the fact remains that 95% of the increased power production in the world up until 2026 will come from renewable energy sources like the sun.

The world’s demand for green energy will not be denied. President Joe Biden’s $1.2 trillion infrastructure package is partly going toward developing new energy technologies, yet there still remains the question of traditional commodities like oil, especially considering mega players like Saudi Aramco just went public in the past few years. Many wonder if the change-over to green energy will drag down the demand for oil and affect oil prices. This may not necessarily be the case, as carbon-producing power sources will be needed to facilitate this transition itself. Let’s look at the relationship between oil prices and renewable energy by covering some of the top solar companies of 2022. Read before you start to trade oil with the iFOREX platform as CFDs.

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Solar Giants

  • China’s Daqo New Energy Corp, which makes polysilicon for solar cell manufacturers, is one of the stars of the solar world at the moment and is shooting ahead quickly. Rene Sola Ltd., which develops solar projects, reported a net revenue increase from Q3 2021 on December 7th. This growth had to do with the company’s solar project sales in Poland and the USA.
  • US-based SunPower Corp, the producer of solar panels and systems, unveiled its SunPower Financial on December 8th, an institution geared toward helping to make renewable energy more affordable.
  • Another Eastern star is Azure Power Global Ltd. In India, which builds utility-scale solar projects.
  • American company Sunrun Inc., the maker of home solar systems, also reported revenue improvement in Q3.
  • GCL-Poly Energy Holdings Ltd. in Hong Kong is a fast-growing photovoltaic company that makes polysilicon and silicon wafers and owns large solar farms.
  • Enphase Energy Inc. is also a quick mover in the field, producing solar-plus-storage systems and establishing a strong presence in Mexico going into 2022.

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Will renewables dampen oil prices?

Faisal Faeq, formerly of OPEC, believes that renewables do not represent a threat to oil. One reason is that oil is needed for a variety of things including not only electricity production but also petrochemicals and transport fuels, while renewables are only used to generate electricity. “Crude oil is a major commodity and a primary raw material for industry. Renewables can’t be either,” says Faisal. He goes on to explain that, although in the 1980s low oil prices disheartened investment in renewables, this is no longer the case because, “Over the past three decades, renewable investments became more resilient to movements in oil prices.”

One factor that does seem to be correlated with oil prices is the omicron variant of the Covid virus. Because the restrictions it entails may threaten oil demand, oil prices reacted to its appearance by declining. In mid-December 2021, Covid hospitalizations were up in the USA, and so were the daily new cases in the UK. “We need to be ready for Covid headlines to continue driving the oil market on a day-to-day basis,” comments PavelMolchanov of Raymond James & Associates Inc. This is, at least, for wintertime. In fact, the International Energy Agency has reported that the global oil market is already in surplus due to the omicron-related restrictions. Further weighing on oil prices has been the weaker-than-usual- demand in Asia due to unseasonably warm weather.

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2022

According to the China Photovoltaic Industry Association, in the coming year, “Solar installations will jump up by about 50% to 75 gigawatts.” In fact, China has had a challenging year with respect to energy, suffering a major coal shortage several months ago which led to widespread power cuts. Gas prices have been up too, due to insufficient supply from Russia and the Netherlands.

Exactly what mix of factors will drive oil prices in 2022 cannot be known yet. If you are about to start to trade oil with the iFOREX platform as CFDs, it makes sense to keep an eye on health news in the coming weeks, as well as any news in the field of renewable energy. Don’t forget to stay in touch with any news about oil giant Saudi Aramco, who earned $47 billion in only the first half of 2021 and were valued at a massive $2 trillion in October.

Learn about the latest oil prices and Saudi Aramco activity. Read before you start to trade oil with the iFOREX platform as CFDs.

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