On Monday 20th April something happened for the first time in history. Oil companies had started having to pay people to take their oil, as the price dropped below $0 a barrel. Given the complicated business of storing oil, this was not a money-making scheme that was available to many of us.
However, this meant one of the world’s largest commodities had become less than worthless.
Many modern oil fields are in remote and difficult locations, as all the easily accessible ones have been exhausted. At this point, many major oil companies will have to write off trillions of dollars of assets if the oil price stays too low to make excavating this oil economically viable. The huge budgets of these companies will then be channelled more into reliable alternatives. Solar, wind, and hydrogen are the frontrunners. Huge leaps forward in battery technology research have created a perfect storm to drive up renewable energy generation and storage.
The counter argument is that the demand for oil will return in time, and oil derivatives like plastics are still required. Once the pandemic recedes, we likely will return to activities like travelling abroad, eating out, powering our department stores, and so on. However, with the cat out of the bag in terms of working from home arrangements, e-learning for schools, and increased online shopping, perhaps we will all re-evaluate the fossil fuel energy we use, and the demand may never return to what it was.
The other activity which is happening in parallel is the electrification of our vehicles and heating. In 2025, domestic gas boilers will begin to be phased out of the UK, and there are similar targets for vehicles in 2032. Therefore, the demand for electricity will increase during this time. This is supported by the tumbling of costs of renewables (solar panels have dropped in price by 60% in the last decade). Oxford PV have recently announced a huge leap in the efficiency of their panels. Offshore wind funding has increased 4-fold from this time last year. In 2020, the cheapest vehicle options are still petrol-based. However, the cross-over when electric vehicles become cheaper over their life is only a year or two away.
In their own response to the crisis, the UK government has created grants which would cover two thirds of the costs of home energy improvements, including solar panel installations. I expect a cascade of homeowners to be installing solar panels under this scheme, as the household payback time in terms of energy generation will be considerably shorter. This will also be a boost for the electricity grid, as it will absorb back for free all the excess energy that is not used. Combined with the introduction of domestic battery systems, electric vehicle charging, and smart energy usage at home, this will reduce our reliance on non-renewable energy generation in the coming decade.
Another issue which is emerging is how fossil fuel power plants that were previously the easiest to build and run, are now becoming uninsurable. Companies offering insurance to new power plants are withdrawing from the market due to the pay-outs that could be expected due to environmental damage. The development of IoT pollution sensors is driving the awareness of this damage and holding the relevant parties accountable. Therefore, the green argument is being won not by environmentalists, but rather by economists.
Lastly, as the worldwide economic outlook becomes bleaker, countries producing fossil fuels will suffer socio-political turbulence which will make the supply less reliable and stable. All other countries that import from these few suppliers will have the option of turning to home generated renewable sources.
Therefore, you have coal power stations being decommissioned; gas pipelines which involve complicated international agreements and facing environmental activism; oil which is increasingly uneconomic to extract; and the cost of batteries, solar panels, and wind farms are coming down at a dramatic rate. This electrification of our lives is being helped along by government targets and schemes. Hopefully, the silver lining from this pandemic shall be the shake up the world needs to modernise its energy generation and use, and the world needs us to succeed in this plan.