Alternatives add up at $US100 for oil

Canberra Times
Saturday 10/11/2007 Page: 19

While motorists may be alarmed at the inexorable rise in the price of oil, which is setting new records almost daily, environmentalists and alert investors see a silver lining in the cloud. Not only should high prices for oil (and coal and gas, which have also jumped) prompt a reduction in usage, but they will encourage the use of renewable energy, the price of which is now falling relative to fossil fuels.

A decade ago greens were told a switch to sustainable energies was a pipe dream with oil trading at just $US10-$15 a barrel. But this week few traders are betting against the price of oil soon going through $US100 ($A107). "The game has changed now," green fund Low Carbon Accelerator's chief investment officer Steve Mahon said. "We have moved away from the world of cheap energy that existed 10 years ago.

There is an incredible transformation going on and it will drive its towards cleaner energy as fossil fuelss are finite and will be exhausted at some point." Calculations of the relative costs of different energies are difficult because they depend on whether the energy is used for transport, heating or electricity. The comparison between any renewable energy and fossil fuels is also difficult because the fuel - for example, sun or wind - is free and inexhaustible, so the costs involve the building and running of, say, a wind farm.

University of Birmingham sociologist David Toke, has calculated that onshore wind energy is viable at the equivalent oil price of $US50-60 a barrel and $US70-80 a barrel for offshore wind farms, assuming a guaranteed income flow for 15-20 years, but not counting any government subsidies. Researchers at the German Aerospace Centre have run calculations for desert based concentrated solar power, which use mirrors to concentrate the sun's power on to a fluid and drive turbines. This technology exists in California and Spain and is growing rapidly. The cost is around $US50 a barrel of oil equivalent for generating heat, falling to $US20 when the technology is scaled tip. For electricity production, the figure could be double that, close to the current oil price.

But that is expected to fall rapidly with scale and will be made even more attractive when fossil fuelss have to pay the cost of carbon they emit, either through carbon taxes or a carbon trading scheme. biofuels - often used as a direct alternative to petrol or diesel - are now selling for about $US40-70 a barrel so are clearly already competitive, Economic Research Council research director and founder of website altenergyinvestor.org Dan Lewis says. "Higher oil prices always get more publicity, but since 2003, the cost of other energy commodities like coal, uranium and gas have risen mach faster.

All of these are far more powerful investment signals for alternative energy than the price of carbon ever will be," he said. Mr Mahon agrees, saying that algae based biofuels, which are very rich in energy but take up very little land that could otherwise be used for food, are competitive at about $US54-64 a barrel of oil equivalent. They yield 30 times more energy per Hectare than palm oil. Even solar photovoltaic cells which generate electricity, traditionally the most expensive of renewables, are becoming more competitive. Mr Mahon thinks within a couple of years photovoltaic cells will produce electricity at about A11c/kW. "That's pretty competitive," he said.

Figures from energy consultants McKinnon & Clarke, show fossil fuelss typically produce electricity for between A5c and A10c a kilowatt hour in Britain, with wind about A12.5c/kWh. solar thermal, which heats water, costs A14c/kWh and photovoltaic cells are A32c/kWh. biofuels are less than A10c/kWh. Head of photovoltaic cell firm Solar Century and author of the book Hall Goite, which predicts that oil will soon run out, Jeremy Leggett, says cell prices are falling fast.

"With manufacturing costs falling 20 per cent every two years in solar PV photovoltaic cells, and the price of oil hooked to the cost of gas, and coal transportation, we can expect the falling cost of solar electricity to cross the retail price of polluting power in most industrialised markets within just a few years now. Huge as the investment into solar now is, it is going to rise further as the opportunity dawns on ever more people," Mr Leggett said. But the head of Impax Group, Britain's largest green investment fund, Ian Simm, said higher oil prices also gave an incentive to oil companies to explore and produce more of the stuff as well as processing coal into liquid fuel, something which was highly polluting.