Photograph by Andrew Henderson, Nat Geo Image Collection
Read Caption

Wind turbines provide energy for the residents of Samso Island, a Danish island that gets all its power from renewable sources.

Photograph by Andrew Henderson, Nat Geo Image Collection

Why Solar and Wind Are Thriving Despite Cheap Fossil Fuels

Low oil prices are rattling stock markets, but investors remain bullish on solar, wind, and other clean energy. Here are three reasons why.

The prolonged plunge in fossil fuel prices is rippling across the globe. Yet it’s barely put a dent in the booming market for clean energy, heralding perhaps a new era for wind and solar.

Oil prices of less than $30 a barrel—the lowest in 12 years—have shaken stock markets and ravaged the budgets of major producers such as Russia and Saudi Arabia. Along with falling gas prices, they’ve slashed the profits of fossil fuel companies, which are delaying dozens of billion-dollar projects and laying off thousands of workers.

In Texas, home to shale-rich oil deposits, once-crowded trailer parks that housed workers are now largely empty.

But solar, wind, and other clean energy? They’re expanding. Last year, they attracted a record $329 billion in investment—nearly six times the total in 2004, according to a report this month by Bloomberg New Energy Finance or BNEF. Wind and solar also installed a record amount of power capacity.

The clean energy revolution is not entirely immune to cheap oil, which has lowered prices at the pump. In the United States, where gas prices are now below $2 a gallon in many places, sales of SUVs rose last year while those for electric vehicles fell after several years of growth. Yet globally, sales of EVs continue to increase.

“We’re not saying there’s no impact, but we’re not seeing a significant impact yet,” says Angus McCrone, BNEF’s chief editor. “There’s a lot of momentum behind clean energy.”

He and other experts explain why:

1. Prices have fallen as government incentives have risen.

Oil and gas may now be a lot cheaper than a few years ago, but solar and wind are cheaper, too. Since 2008, according to U.S. government data, prices have plummeted 60 percent for large-scale solar, and 40 percent for wind. 

Solar and wind are “competitive in many countries,” says Alex Klein, senior research director of renewables at IHS Energy, a research firm. He notes they don’t compete much with oil, used mostly as a transportation fuel, but they do compete with natural gas, often used to power plants that produce electricity.

Despite low natural gas prices, solar and wind accounted for 60 percent of new U.S. power capacity last year and will likely account for 70 percent this year, says Marlene Motyka, U.S. alternative energy leader at Deloitte.

Such competitiveness is new. “The last time oil was at this price, the cost of renewables was much higher,” says Jonathan Grant, director of the climate change team at PwC (also known as PricewaterhouseCoopers.)

Their economics could improve. “For renewables, particularly solar, substantive improvements in cost and efficiency are not only possible but likely,” writes Sott Nyquist, director of McKinsey & Company's Houston office. In contrast, he says, coal is facing steeper costs partly because of tighter U.S. regulations, and gas is already using technologies that are highly efficient.

Solar and wind got a huge boost in December, when the U.S. Congress renewed their tax credits for another five years. BNEF expects this extension will add an extra 20 gigawatts of solar power—equal to the total amount installed via solar panels in the U.S. prior to 2015.

2. Demand has expanded, driven partly by public policy.

Countries are looking to renewable energy to meet the pledges they made as part of the UN climate accord last month in Paris. They agreed to cut the carbon dioxide and other greenhouse gases that are emitted when oil, gas, or coal are burned. President Barack Obama is requiring U.S. power plants to cut their emissions 32 percent by 2030, compared to 2005 levels, and automakers to nearly double the fuel economy of their vehicles by 2025.

Some countries, such as India, see renewables as a way to reduce their severe air pollution. China is cutting back its use of coal, the dirtiest fossil fuel, even though it’s cheap.

Developing countries in Africa, where many people don’t have access to a central power grid, are pursuing solar projects as a quicker and less costly way to provide electricity. Wealthier countries are using solar to create microgrids that can keep the lights on when storms like Hurricane Sandy knock out the central power grid. Even college students are designing solar-powered homes that can provide backup power in their neighborhood. (Check out what such a home looks like.)

States and local governments are pushing low-carbon or carbon-free energy alternatives as well. In the U.S., dozens of states now require they account for at least a certain amount of their electricity. On Thursday, New York Governor Andrew Cuomo announced his state will spend $5 billion over a decade to promote clean energy. Hawaii has pledged to get all its power from renewables by 2045, Vermont has pledged to get 75 percent by 2032 and California, 50 percent by 2030.

3. Corporate and investor support is strong.

Companies are making similar pledges. The Paris climate summit prompted a “tipping point” in corporate support, says a report this month from Influence Map, a nonprofit based in the United Kingdom. The report says more than half of the world's largest companies now back steps to cut heat-trapping emissions and a third support putting a price on carbon.

“The corporate side is here to stay. I don’t see businesses stepping back,” says Deloitte’s Motyka. In a recent Deloitte analysis, more than 55 percent of companies report generating some of their electricity on-site, 13 percent of which comes from solar panels or wind turbines.

Renewables are attracting capital. A recent study by Goldman Sachs says the combined market size of low-carbon technologies—including wind, solar, LEDs, and hybrid or electric vehicles—now exceeds $600 billion, about the size of the U.S. defense budget.

Investments are expected to rise. Some oil-importing countries, including China and India, have saved money from low prices that they can invest in renewables. Even some oil-exporting countries are investing in solar. Saudi Arabia, Russia, Iran and Kuwait are trying to curb fossil fuel use at home so they can maximize profits for oil exports.

“Fossil fuels will be here for decades to come, but their share will fall,” says PwC’s Grant. Even in the transportation sector, where oil is so important, he expects electric vehicles will eventually catch on—but not because of price.

Consumers will see them as more “desirable,” he says, noting EV perks such as dedicated parking spots and use of HOV lanes. Besides, he says they promise all sorts of self-driving and gee-whiz tech features, adding: “They’re much cooler.”

The story is part of a special series that explores energy issues. For more, visit The Great Energy Challenge.

On Twitter: Follow Wendy Koch and get more environment and energy coverage at NatGeoEnergy.