Slumping oil prices

What impact is the current development in the commodity market having on the profitability of renewable energy sources? A summary given by 11:55 PM consultants GmbH.

Most German consumers have welcomed the rapid fall in oil prices with a sigh of relief. On average, motorists will spend 500 euros less on petrol this year. The fact that German exporters are receiving fewer orders from commodity-producing countries appears less significant – at least at first glance. Ultimately, North America and China have so far offset the reduced demand from Saudi Arabia and Russia. But now some experts also fear for the renewable energy sector.


Due to the current very low oil price, some renewable sources are finding it more difficult to gain a foothold in the market. In terms of heating and transport, the introduction of technologies that support renewable energies is extremely expensive. Meanwhile, oil heating gained market share last year. A total of 60,000 oil heating systems were installed in 2015 – 30 percent more than in 2014. When you consider that the proportion of renewable energies in building services fell from 45 percent in 2008 to almost 20 percent in 2015, the trend becomes clear. The German government has also recognised this and launched its "Energy Efficiency Incentive Programme" in January 2016, which is intended to promote alternative energies in buildings and heating systems. 


The slump in petrol and diesel prices is also a problem for the envisaged expansion of electric mobility. Last year, only 12,363 electric cars were registered, which is far too few for the planned target of one million electric vehicles by 2020. Whether it is conducive to further promote electric mobility against the background of lower petrol prices is open to doubt. 


However, analysis undertaken by the corporate consulting firm, Roland Berger, presents an optimistic view. The current increased commercial viability of fossil fuels is only temporary: firstly, nothing has changed in terms of the fundamental scarcity of fossil fuels; secondly, wind power generation on land has become competitive in many European countries. The authors of the study highlight that renewable energies certainly have the potential to become more viable. Wind farm operators, for example, could increase their profits by over 300 million euros a year by reducing operating costs. The German Wind Energy Association (BWE) points out that energy from wind farms is now considerably cheaper to produce than it was four years ago. 


According to analysis by Bloomberg New Energy Finance (BNED), 328.9 billion US dollars were invested in global development of renewable energies last year. Although Germany lost its leading role, according to the study, the record level of investment shows that low oil prices did not affect the international trend of developing alternative energies. According to BNED, the noticeable decline in investment in Germany's renewable energies sector is due to the reduction in photovoltaic systems. 


If we consider the impact of low oil prices on the individual renewable energy sectors, a varied picture emerges. Whilst the falling prices of fossil fuels are creating a negative trend in electric mobility and heating systems, the wind energy market has now become so healthy and profitable that there is even talk of stable development. As it is expected to take years for oil prices to return to their previous high levels, the German government will need to make individual adjustments to its state subsidies.