Senior Analyst

Passionate about the markets, the excitement, the story driving the markets at the time, the fundamentals and even the technicals.

Over the last 12 months or so, fossil fuels have dominated the headlines. The sharp pullback in oil prices has created economic turmoil in a number of countries, leading to the impression that there is a huge oversupply of oil on the world markets. In fact, prices have fallen so far that higher-priced oil sources – such as fracking and the Canadian oil sands – have started to become uneconomical.

Why renewable energy is still growing in popularity

Given this background, you might expect that interest in renewable energy resources – biofuels, wind power and solar power, for example – might be on the wane. However, while the short-term picture may be choppy for renewable resources, in the longer term the world still faces two inexorable forces – the depletion of fossil fuels and global warming. Both of these are driving continued and increasing interest in renewables.

What types of renewables are there?

Renewable energy resources really fall into two basic groups. The first are direct replacements for oil and gas – these are biofuels such as ethanol. The second group typically generate electricity – these are things such as solar, wind and tidal power. Both aim to be more environmentally friendly – replacing oil directly, or replacing coal-fired power stations.

Challenges with biofuels

Despite a growing popularity, biofuels still have significant issues. The big advantage is they can be used more or less as a direct replacement for oil, which means that they can in principle leverage existing trading and transportation mechanisms. However, it isn’t quite that simple. While established commodities such as Brent or West Texas Intermediate are widely traded using standard contracts, the same isn’t the case for biofuels. These tend to be handled in over-the-counter trades or on smaller exchanges, making trading more difficult and more risky.

Are biofuels environmentally friendly?

Another issue with biofuels is that they are not as environmentally friendly as they first seem. The basic idea behind a biofuel is that it is carbon neutral – it’s made from crops that absorb carbon dioxide from the atmosphere when they are grown. Burning the biofuel just releases this same carbon dioxide back into the atmosphere, so there are no net emissions. However, the reality is that it takes energy to grow those crops – and that often comes from fossil fuels. The other problem is that some biofuel feedstocks are also food sources – for example corn – and so producing biofuels has a direct impact on global food production.

Challenges with solar and wind power

In many cases, solar and wind power are truly green – they do not contribute to greenhouse gas emissions, other than any fossil fuels used to manufacture and install turbines and solar panels. However, the problem is that they are intermittent – the sun doesn’t shine all the time, and the wind doesn’t blow constantly. This means that they currently can’t replace fossil fuels entirely. Currently, there are no large-scale electricity storage mechanisms that can hold excess electricity generated by solar and wind power, and then release it again when it’s needed. There are some promising technologies, such as liquid-metal batteries, but these are still in the early stages.

Was this article helpful?

0 0 0