Why lower oil prices are good for the solar industry

Jan 5, 2015

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Summary

Lower manufacturing costs: Oil is an expense to almost all industrial and manufacturing activities. So the cost to manufacture solar modules, inverters, racking and storage systems will go down.
Lower transportation costs: Total transportation cost can be 10 percent of a solar projects cost. This includes rail, truck, cargo ships, and then local transport to solar project sites.
Increase in global demand: increase in world-wide aggregate demand due to lower input cost to almost every phase of economic activity. This will result in higher spending and capital investment.
Lower natural gas production leading to increasing natural gas prices: Lower capital expenditures due to weaker oil prices. This will result in lower future natural gas production, causing higher prices.

Over the past 5 months or so, we have seen 50% lower oil prices in the US and the rest of the world. Firms that produce oil have seen their respective stock prices crash. We have also seen equities remotely related to energy get hammered as well, including solar manufacturing firms. This is illogical as I will point out in this article.

First we need to classify solar a bit better, and understand the economics of solar. Solar is part of the business and customer spending sector – it’s a consumer product much like a big screen TV, commercial forklift, or a new car or truck. Solar firms are not energy firms, but hi-tech consumer product companies.

Second we must understand the economics that drive solar consumer spending. The cost benefit for solar is pretty simple. There are two components – how much does it cost per KWH to produce your own electricity, and how much do you offset or save per KWH of electricity by installing solar.

To read more, go to the Seeking Alpha website.

This article is published in collaboration with Seeking Alpha. Publication does not imply endorsement of views by the World Economic Forum.

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Author: ESP LLC is an energy consulting firm specializing in alternative energy systems, and energy economics.

Image: A worker inspects solar panels at a solar Dunhuang, 950km (590 miles) northwest of Lanzhou, Gansu Province September 16, 2013. REUTERS/Carlos Barria.

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