Why Oil Prices Shouldn’t Affect Demand for Solar

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Why Oil Prices Shouldn’t Affect Demand for Solar

Allison Donnelly for Zondits, January 26, 2015

In my basic economics class in college, I got a question on a test asking if the price of oil were to decrease, what would happen to the demand for solar energy? Having been an energy nerd even back then, I wrote that there would be no change: the markets for transportation energy (including oil) and electricity energy (including solar) were mostly unrelated due to the very different end uses, and oil and solar did not compete. My professor, like many people, assumed that “energy” meant “energy” and that fossil fuels and renewables were diametrically opposed – and she marked my answer wrong.

While I was sore about the myth costing me a few points on a test, that exact same question is playing out in reality right now. The price of oil has decreased dramatically – and investors have (irrationally) started pulling support out of the solar market. The CEO of Sol Systems, a solar finance and investment firm, explains in this article why the myth of solar and oil competing in energy markets isn’t true.

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A Reminder to Investors Dumping Solar Stocks: PV and Oil Rarely Mix

Greentech Media, January 16, 2015

One of the most important stories of the last year was the collapse in global oil prices that began in June 2014 and continues in 2015. It has created a lot of confusion among investors eyeing the impact on renewables, particularly solar PV.

Falling oil prices will have an extremely limited impact on wholesale or retail electricity prices, which are the core economic drivers for the future of solar. And yet, the situation has been terrible for publicly traded solar companies. Over the last six months, SunEdison’s stock is down almost 20 percent, SolarCity is down 30 percent, and SunPower is down almost 40 percent. This is in spite of the fact that the fundamentals of the industry continue to improve, as most analysts have made clear.

As most readers know, the short answer is that oil has nothing to do with solar. But it’s helpful to look at those differences and understand why the decoupling of oil and the electricity markets is a good thing for the solar industry.

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