Everyone pays attention to oil prices as their first cut on energy prices. I see numerous Wall St. analysts comparing oil price changes to solar stock price changes and showing strong correlations, and I scratch my head. Oil prices shouldn’t really drive the fortunes of solar companies. Very little of our electricity generation mix in the U.S. or in Europe or Japan (or other solar markets) comes from oil-fired generators. And yet investors seem to view solar as a hedge on oil prices, probably because oil prices are highly visible and volatile. We pass by gas stations all the time in our daily lives and see the prices go up and down. Oil prices are reported on in the evening news. VCs are often asked what their oil price “breakeven†is when looking at cleantech opportunities (ie: “what long run oil price do you invest based upon?â€). Oil, oil, oil.
Everyone pays attention to oil prices as their first cut on energy prices. I see numerous Wall St. analysts comparing oil price changes to solar stock price changes and showing strong correlations, and I scratch my head. Oil prices shouldn’t really drive the fortunes of solar companies. Very little of our electricity generation mix in the U.S. or in Europe or Japan (or other solar markets) comes from oil-fired generators. And yet investors seem to view solar as a hedge on oil prices, probably because oil prices are highly visible and volatile. We pass by gas stations all the time in our daily lives and see the prices go up and down. Oil prices are reported on in the evening news. VCs are often asked what their oil price "breakeven" is when looking at cleantech opportunities (ie:"what long run oil price do you invest based upon?"). Oil, oil, oil.
But I would argue that the more salient price is natural gas. It's the peak generation fuel of choice and thus determines the peak electricity prices that most affect energy efficiency and smart grid and PHEV techs. Ditto for solar prices, since solar is largely a peak power play (esp. once peak-shifting energy storage options are implemented). It’s also a minor transportation fuel, so in some scenarios it can affect transportation tech options as well (if natgas prices drop, we'll see a lot more natgas cars on the road). Coal prices would be another good price to follow, but since it looks harder and harder to build new coal-fired facilities in the developed world, natgas fired generation is just as important for long-run scenario planning.
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Funnily enough, right now there are a lot of divergent viewpoints when it comes to future natural gas prices for the U.S. Here's one analyst who argues that peak U.S. natural gas will occur between 2010 and 2020. Yet I’ve also seen industry participants such as Ziff Energy point to the rapid expansion of "non-traditional" reservoirs in the U.S. such as the Barnett Shale and argue that natural gas prices are going to go on a long-term decline (more good info from FERC in this pdf), although others say that such reservoirs will be costlier to access. Forward price curves, according to FERC and NYMEX (note: link opens pdf) are up, but not significantly.
