The decline in the global oil prices – Brent crude is down from US$100 a barrel in August 2014 to US$58 a barrel in February 2015 – is the current hot topic in the energy sector.
Clearly this is having an impact on factors petrol prices and manufacturing costs, but it will also have implications for the power generation sector – coal, gas, nuclear, hydro, wind, solar, bioenergy, grid modernisation, energy storage and microgrids.
Conventional generation will continue to dominate global installed capacity, although compared to 4–5 years ago, investments in gas and in renewable energy are projected to increase at a greater rate, at the expense of coal and nuclear.
In its latest Annual Global Power and Energy Outlook, Frost & Sullivan remains confident that renewable investment will stay strong and that oil is unlikely to make a major comeback in power generation.
Frost & Sullivan Senior Consultant, Jonathan Robinson comments: “As oil now accounts for just 5 percent of global electricity generated, and in many countries it is 1 percent or below, it is just no longer considered a viable option for electricity generation.”
In contrast, solar photovoltaic (PV) is currently judged to be the hottest of the renewable technologies. Frost & Sullivan forecasts that the global solar PV capacity, which stood at 93 gigawatts (GW) in 2012, will increase to 446 GW in 2020, with China, India and North America recording the highest growth rates. Even the global leader in solar PV, Europe, will see capacity double by 2020, despite reductions in incentives during the financial crisis.
Incentives though are becoming less and less important for a number of key renewable energy markets. For instance, commercial solar PV in North America is increasingly becoming competitive against centralised generation, despite reductions in feed-in tariffs. Offshore wind, on the other hand, is a long way from being viable without incentives. Many US states and European countries have legally binding renewable targets that they are under pressure to try and meet, supporting the growth of renewables.
Nevertheless, conventional fuels will maintain a dominant position globally, as developing economies in Africa and Asia continue to rely on coal as a key source of electricity generation. China, which accounts for 45% of global coal capacity, will continue to build plants, although growing public concern over pollution levels will mean that investment shifts to eastern China and is at a lower level compared to the previous decade. Instead, China will continue to invest in renewables, but also carbon-free nuclear power.
“The lower oil price could provide a boost for natural gas usage in power generation, as declining spot prices make it more affordable,” observed Robinson. “Close to 30GW of gas-fired plant capacity has closed in Europe since 2012, but lower gas prices and some government support programmes should prevent more large scale closures.”
Shale gas still has a longer-term future, but new exploration will largely cease in most markets with oil prices at or below US$58 per barrel. The exception may be China, where the government will continue to invest for long-term strategic reasons. Shale gas is unlikely to play a major role in global gas supply until the mid-2020s due to a range of technical, political, and environmental challenges, but the growth in the US has been enough to shake up the market in the past five years.
“One country already suffering because of the lower oil price is Russia,” noted Robinson. “This will mean a reduction in investment in new power generation capacity, as state entities lack the necessary funds and private investors lose confidence in the face of an economic crisis.”