Why Solar Power Makes Sense Even When Oil and Gas Prices Drop
1st May 20
Solar power systems use sunlight, a free and abundant energy source that reaches homes and buildings by itself. Fossil fuel prices can sometimes drop sharply, like in the coronavirus emergency, but they can rise again in the future. Also, fossil fuels depend on complex supply chains to reach the point of use.
Solar power systems save money in homes and businesses by generating electricity that would otherwise be purchased from power companies. The savings achieved with solar panels depend on installed capacity, the available sunshine, and local electricity tariffs. Australia has abundant sunshine and high electricity prices, which makes solar panels an excellent investment.
The capacity of a solar power system is chosen by the owner, ideally after a professional assessment from a solar company. Local sunshine cannot be changed, but solar panels can be placed optimally to maximise the sunlight received, while avoiding shadows. However, consumers have no control over electricity prices, since they are determined by local governments and power companies. Most electricity consumers in Australia can choose their electricity provider, but kilowatt-hour prices are among the highest in the world.
Since fossil fuels are widely used for power generation, their international prices impact electricity tariffs. This is especially true for countries that produce most of their power from fossil fuels, such as Australia. When a global emergency like the coronavirus outbreak causes a drop in fossil fuel prices, generating electricity with them also becomes cheaper. However, switching back from renewable sources to low-cost fossil fuels can be a mistake, for several reasons that are described in this article.
Solar Power Costs Are Constant, Fossil Fuel Prices Are Volatile
The prices of coal, crude oil and natural gas have dropped since the coronavirus outbreak started, and oil has been affected the most. Solar power and other renewable sources may seem less competitive for now, but consider that fossil fuel prices are always changing. As coronavirus is controlled and countries lift their restrictions, oil demand will increase again and its price will bounce back. Relying on fossil fuels based on their temporary low prices is a short-term decision, which can be more expensive over time.
Price volatility is not an issue with solar panels and wind turbines, since they use free energy inputs – sunlight and wind. These resources are unaffected by natural disasters, sanitary emergencies and geopolitical conflicts. On the other hand, fossil fuel prices are susceptible to all these global factors, and they can even be manipulated by major producers.
Even if fossil fuel prices have dropped temporarily, many corporations do not have much chance to benefit from them. Since the novel coronavirus has disrupted global supply chains, many companies have been forced to reduce their operations. When they return to business as usual, fossil fuel prices will have likely increased again.
Sudden drops in fossil fuel prices can reduce operating costs for many companies, but those savings cannot be planned. On the other hand, when corporations use solar power and other renewable sources at large scale, they get permanent benefits and predictable costs:
- High-quality solar panels normally come with a 10 to 12 year warranty against manufacturing defects, and a 25 year warranty for keeping at least 80% of their initial power output.
- Since the energy input used by solar panels is free, maintenance is the only ongoing cost. On the other hand, companies that rely on fossil fuel power have no way to predict electricity costs, even in the short term.
In a few words, relying only on fossil fuels can be compared with gambling, since there is no way to predict their costs accurately. Companies can save money when fossil fuel prices drop, but they must assume unplanned expenses during a price spike. On the other hand, solar power gives companies more control over their electricity expenses.
Solar Power Uses a Local Energy Resource
In addition to having volatile prices, fossil fuels depend on complex supply chains to reach the point of use. They must be extracted, processed and delivered, which means there are several steps where the supply can be disrupted. Normally, governments will not shut down the energy industry during a sanitary emergency like coronavirus. However, all companies that operate during the emergency must follow stringent protocols from health authorities, and some disruption is unavoidable.
The delivery of solar panels and other renewable energy equipment can be affected during a global emergency. However, once the solar panels are installed and operational, they are independent from all external inputs. Sunshine is available daily and at zero cost, except when the weather is cloudy.
- Since solar panels have a service life of over 25 years, installing them brings long-term benefits.
- There can be many changes in the fossil fuel industry during that time, but electricity from solar panels is guaranteed – sunlight will continue to be free and abundant.
- Solar panels degrade over time, like any device. However, the industry standard among leading manufacturers is keeping no less than 80% of the initial capacity after 25 years.
When electricity from solar panels and wind turbines is used to charge electric vehicles, their benefits extend to the transportation sector. The cost of using normal vehicles depends on gasoline and diesel prices, while electric vehicles can use renewable resources that are locally available. When governments impose lockdowns that force the population to stay home, electric vehicle owners who have solar panels can forget about refueling at gas stations.
Solar power gives companies greater control over their energy expenses, since unpredictable electricity tariffs can be avoided. Solar power systems are also self-sufficient, not relying on any external inputs. As a result, their electricity production is unaffected by emergencies like the coronavirus outbreak. When solar panels are combined with energy storage systems, their electricity can be used even at night and with cloudy weather. Batteries are still expensive, but the International Renewable Energy Agency (IRENA) expects their costs to drop by over 60% before 2030.
Corporations can go solar at zero upfront cost by signing a power purchase agreement (PPA), where solar panels and all components are financed by the provider. Instead, the user pays for the electricity produced each month, at a price below the local tariff. The provider is responsible for maintenance and any replacements, and the user must simply agree to use the solar power system for the term specified in the PPA contract.