Soaring price oils wheels for green power

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arah Hall’s novel The Carhullan Army, which won this year’s John Llewellyn Rhys prize for literature, paints a bleak portrait of a world where the oil has almost run out. Set in the not-too-distant future, the Orwellian novel describes a Britain run by a dictatorship called the Authority, where electricity is rationed, the miserable population subsists on tinned food and mountain-dwelling outlaws revert to subsistence living.

Last week, in the real world, the price of oil finally went through the $100 a barrel mark, and was a whisker away from breaking the all-time record price of $101.70. While Britain is not about to turn its back on oil and become a dictatorship as a result, it makes investing in clean energy a better bet.
Lord Oxburgh, the former chairman of Shell who now heads Aim-listed biofuels company D1 Oils, says: ‘We are quite a long way from anything we can describe as a “post-oil world”. But $100 a barrel makes a heck of a difference.’

New Energy Finance estimates that last year, the amount invested in the clean energy sector grew to $117bn, up 41 per cent from 2005 and much more than expected. It now accounts for 10 per cent of the energy market globally.

Biofuel technologies are direct substitutes for oil, so the higher the price of the black stuff, the more attractive they become. Oxburgh says that biofuel from the non-edible plant jatropha is economic at $70 a barrel. But because it takes several years to build a refinery and harvest the crop, investors are nervous about gambling that oil prices will remain high.

‘Biofuels need subsidy because no one is going to invest unless they are confident it will be economic,’ he says. ‘That depends on the price of the competing fuel, oil.’

Other clean forms of power generation, such as solar and wind power, compete with gas-fired electricity plants, whose costs go up when oil prices rise.

According to Green Econometrics, solar energy costs about five times more than oil-powered generation. But Dipesh Shah, chairman of solar company Jetion and of Hg Capital’s renewables investment fund, says that solar should become price-competitive with fossil-fuel power generation during non-peak times in the mid-2020s.

‘If oil stays at over $100 over the next two decades,’ he adds, ‘it would bring the crossover point, when solar becomes competitive with conventional generation, forward by up to a decade.’

Observer