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The power of solar and oil …

August 16th, 2017 · No Comments

The decades-long stark separation of ‘transportation’ and ‘stationary’ energy markets is breaking down in multiple ways. While one of the prime ways is transportation electrification (rail and automotive), there has been significant growth in the use of liquid fuels for electricity generation: primarily in oil producing nations but also areas with inadequate to non-existent electricity services.

Solar power’s plunging prices — due primarily to economies of scale and the related/intertwined innovations (technical, policy, business practices …) due to increased solar business — are on the cusp of having significant impact on that intertwining of stationary and mobile environments. This includes solar on Indian railroads and automotive roofs (primarily to support auxiliary demands) as well as solar displacement of diesel electricity generation.

The just-announced Kuwait deal is a significant milestone in this development.

Kuwait is putting out a tender for a 1 gigawatt solar farm with an expected price point about $1.20 per watt (or $1.2 billion). This project, to be competed by 2020, is expected to “save burning 5.2 million barrels of oil a year” for electricity generation.  At a relatively low estimate of $50 per barrel (anywhere from 10% to >30% below analyst forecasts …), that ‘saved’ oil will have a value of $260 million on the world market.  Thus, all things being equal, Kuwait will have a full return on investment for the solar plant in under five years. And, an ROI that will keep paying back year-after-year.

While this sort of rapid assured payback for a major unsubsidized solar project was close to inconceivable just a few years ago, it is a clear sign post of where the world energy market is and is headed: solar systems are ever-more frequently a pure high-value investment even without considering ‘externality’ benefits.

As to the Kuwait project, any calls of this as somehow ‘green’ should be — at best — muted (if not silenced).  Kuwait isn’t suggesting that this solar project will somehow keep these 100,000 barrels per day from being burned and contributing to our climate change challenges.  This is displacement — rather than burning for electricity, the hydrocarbons will be used for petrochemical projects and/or sold into the world oil market.

This project will add roughly the equivalent of a good sized well (about 14,100 barrels per day) to the available oil supply. This oil will contribute to, writ large, lowering oil prices and contributing to oil price stability.  While, in near term, this is a ‘positive’ good in terms of economic development, it is also — by definition — will be a (very minor) contributing factor to undermining movement toward a clean-energy future.

That ‘undermining’, however, is overwhelmed by the economy of scale issue — another $1 billion in solar work and another gigawatt deployed. That is another move forward in the ever-increasing solar economies of scale which is driving innovation that is helping to drive down prices that contributes to ever-lower solar pricing.

While Kuwait’s solar doesn’t displace oil, the value of that produced oil will be lower as ever-cheaper solar power increases the economic viability and attractiveness of electric transportation options.

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Tags: economics · oil · solar