An Energetic Discussion
When Tesla CEO Elon Musk was asked about the effects of fossil fuels, he unabashedly stated that “the scientific fact of the matter is we are unavoidably headed towards some level of harm”. Ironically, the energy used to power the cars he manufactures is itself a fossil fuel; coal. Ethics aside though, the question many commodity traders are asking is whether or not renewable energies will ultimately replace fossil fuels like oil.
Many green tech CEOs and activists would like to think so, and there are certainly signs suggesting it could happened, but for now at least, fossil fuels remain cheaper, more plentiful and more reliable.
Renewable energies such as solar and wind have become increasingly fashionable and have been aggressively promoted by celebrities, mainstream media and global warming alarmists as a viable solution to a world heavily dependent on oil. That’s because renewable energy is sourced from natural resources, such as sunlight and wind. Renewable energy is also replenished at a quicker rate than its consumption (which is why it is called ‘renewable’). Some examples of renewable energy include solar and wind energy. Other less common renewable energies include geothermal, hydro and biomass.
The biggest advantage of solar energy is that no pollutants are produced by it as it is one of the cleanest sources of energy. Additionally, renewable energy requires relatively low maintenance and is also relatively easy to install. Furthermore – it’s becoming cheaper and fast. According to Bloomberg, since According to Bloomberg, since 2009 the price of solar energy decreased by more than 60% and the US Energy Department’s National Renewable Energy Lab predicted an additional 20% price decline by 2020. Many sunny countries including the United Arab Emirates, Chile, Mexico, Saudi Arabia and Jordan are promoting massive solar projects that could lower the cost further.
The main disadvantage of solar energy is that it can only be produced when the sun is shining and sunlight exposure depends on location, time of day, time of year, and weather conditions. However, improved solar storage methods are being developed and could potentially solve this problem.
Although renewable energies like solar and wind have made impressive progress, their viability on an international scale is not yet enough to overtake fossil fuels. A wind farm for example, could operate close to maximum capacity at brief, unpredictable moments but produce little to nothing the rest of the time. Solar energy only operates at capacity on sunny days. This means that if it’s cloudy out, or night time, it simply cannot produce the cheap, abundant, reliable energy that fossil fuels like oil and natural gas can provide.
Aside from its natural limitations, the maintenance of solar energy remains expensive in comparison to oil, although, as we pointed out, improved technology can change this and fast. In third world countries, most communities will be unable to afford the maintenance attached to solar panel ownership. The solution could be solar ‘farms’ created by the governments of these countries.
The other problem is with the term ‘renewable’. Although the sun and wind are in fact renewable sources of energy, the term ‘renewable’ was invented to imply that fossil fuels like oil are not renewable. The notion that the world was running out of oil gave heed to the popularity of the term ‘renewable energy’ when referring to more natural sources of energy like solar energy. The only problem is that advanced technology such as shale energy (fracking) has by in large put that myth to bed.
The bottom line
For now, oil remains cheaper, more abundant and more reliable than solar energy, but there are many companies and countries working to change this. Will they succeed or is so called ‘green’ energy remain a hopeful dream? It is always risky to make definite prediction – especially when any technological breakthrough can change the rules of the game – but it is clear that solar price will decrease in the next few years and all that’s left is to see if it’ll be enough to offer a proper competition to crude oil and natural gas.
Of course, if you think you do know what will happen with alternative energy resources, you can turn your predictions into investment. At iFOREX you can invest in commodities such as WTI oil and natural gas in the form of CFDs, as well as in the share CFDs of large energy companies: Both of the traditional and the renewable kind.
Stay informed, follow changes in the energy industry and stay ahead of the market.
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