Low oil prices? Now is the time for renewables

Why should you invest in a renewable energy system? The oil price is falling and the Renewable Heat Incentive scheme is due for review in April 2016. When people assess the possibility of installing a renewable energy system to provide heating and hot water to their property, on many occasions as well as the incentive of the RHI, they are looking to reduce the operating costs of their current system. With natural gas still being a cheap fuel, the majority of these sites are in rural ‘off grid’ areas. These areas generally have a heating system served by an oil or LPG boiler. But with the oil price dropping to 35p/litre, making a kW of energy comparable to the price of a kW of gas, why would anybody consider a renewable energy system such as a ground source heat pump or biomass boiler? A year ago, a barrel of oil on the wholesale market cost in the region of $115, today that same barrel of oil is trading at $50. To the consumer this great news, cheaper petrol at the pumps, lower heating costs in rural areas, meaning more expendable cash to boost the economy. However, it is always wise to keep an eye on the future and make sure we future proof ourselves, to do this we need to understand the current situation. In 2008 oil was around $150 a barrel and was predicted to continue to rise towards the $200 mark. Then came the global crash and many economies started to slow down. One of the major economies to slow down was China, a huge consumer of raw materials. At this stage the producers in Saudi Arabia, the country with the cheapest oil, saw an opportunity. From this they decided to ramp up their own production, with the goal of putting all its high cost competitors out of business. Its other major goal was to target the US fracking industry, which was making the world’s largest oil importers almost self-sufficient. This increase in production over the last 12 months has seen the oil price fluctuate between $105-$46 a barrel and we have all felt the benefit. However, the key fact to all of this is, the Saudis, the world cheapest oil producing nation. They have a breakeven production price of $105 a barrel, meaning currently they are losing significantly on every barrel sold. This is all in the game plan for them and keeping the market flooded with oil is seen as means to an end in the fight to put its competition out of business. Saudi Arabia has seen $65 billion drain from its reserves to pay the bills and even the government has announced a bond issue to borrow $27 billion. Even a country with the wealth of Saudi Arabia cannot sustain these losses indefinitely. Therefore, once the cheaper oil producers achieve their goal and close down some of their rivals, they will be looking to recoup their losses and they will want to do this as quickly as possible. They will then reduce and control the output of oil, once more issuing a warning about long term global oil supply. This is when our consumer, bubble will burst and once again we will be bemoaning the cost at the pump and those in rural areas the cost of heating our homes. Therefore, with low oil prices, more expendable cash in our pockets and the Renewable Heat Incentive available, there is no better time to consider the long term investment of a renewable energy system. Whilst filling your tank now is cheaper than in a long time, heating your home in 7-years’ time most certainly won’t be. Author N Jefferson

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