Fossil Fuels Pricing and Implications to Competition of Other Fuels
Energy is essential to economic development and currently; America is at an energy crossroad. While the United States produced a record of 78 quadrillion Btu (quads) of energy in 2011, it consumed more than 97 quads, fossil fuels made up more than four-fifths of U.S. energy consumption (EIA 2012). With the rising price of oil, security risks associated with petroleum dependence increasing, and the environmental costs of fossil fuels becoming more evident, the market is open for renewable energy to enter.
Currently, fossil fuels are our nations primary energy source, but they are a limited resource. Therefore, it is vital that we begin to make a shift towards renewables by bringing costs down and making them more readily available. Ever since industrialization, oil has been the driving force behind contraction and expansion of world economies. In the U.S. oil prices have risen since 1970, causing the price of goods that we consume on a daily basis to go up. This inflation slows economic production because the demand for those goods is down. Oil price rises impacts: the general price level, trade balance, domestic and international credit markets, the exchange rate in the United States and many other countries (CBO 2009). According to the U.S. Energy Information Administration, global oil production reached a record high in 2012, that same year also saw record high oil prices. It can be said that as drilling for oil continues, the price consumers pay will go up as well. Renewables, relying as they do on free fuels like sunlight, present no such economic pressures, and as they become an ever-larger percentage of our energy mix, fossil fuels??™ huge GDP drag will begin to disappear (Jabusch 2013). According to a report released by the World Watch Institute and the Center for American Progress, renewable resources currently provide just over 6 percent of total U.S. energy, with the potential for that figure to increase rapidly in the years ahead (World Watch Institute 2013). Comparatively, total amount of subsidies for renewables are much less than those for fossil fuels; which can be seen as one reason preventing renewables from becoming truly cost competitive. If the technology for renewables were to be made more affordable and instantly available, then the market demand curve could potentially shift. As consumer demand for renewables increased, the demand for fossil fuels would decrease, therefore their price would drop as well. For now we can only speculate on how large scale penetration of renewables into the market would affect the economy.
The market is open for possible renewable forms of energy, but there are certain limiting factors that are preventing renewables from gaining widespread use. These factors include: availability, infrastructure, price, consumer demand, and opportunity costs of production. Solar power generation has slightly increased over recent years, but there are variables that have prevented its penetration into the market. First, solar power availability is site specific, there is at least double the amount of sun per square meter in the west, which means consumers who live in the east would be paying a significantly higher price than of those in the west. Second, the payback period on an investment in solar technology is long because the initial price of the technology is so steep. Third, solar energy has not yet achieved grid parity; therefore its cost does not match that of grid electricity. Wind energy has had the largest increase in capacity out of any renewable, but still there are problems that exist with the grid and location. The largest amount of wind energy is primarily concentrated in the central United States, meaning that all of that electricity would have to be transported and dispatched out to the rest of the country. Also, our current grid needs to be updated to increase uptake of other power sources when the level wind power drops. Hydropower is the only renewable that can work with our current grid system. However, high upfront costs of constructing new hydroelectric plants coupled with the negative environmental impacts of doing so make hydropower unfeasible for the future. In order for these renewable sources to be able to compete with fossil fuels on a larger scale, more research and development needs to put forth to bring renewables into the market.
In conclusion, we will always have a need for energy, it is the key to how we go about operating our daily lives, and so the demand for it will never diminish. With that said, there are multiple factors that can will cause a change in price for both renewables and non-renewables. The low cost of production is keeping fossil fuels afloat in the market right now, in order to be able to compete, renewables need to be made more readily available and cost efficient. However, with multiple concerns about fossil fuels ranging from negative environmental impacts to energy security risks, we may see a rapid increase in the production and consumption of renewable energy technologies in the near future.
“CBO | The Effect of OPEC Oil Pricing on Output, Prices, and Exchange Rates in the United States and Other Industrialized Countries.” Congressional Budget Office (CBO). http://www.cbo.gov/publication/15383 (accessed September 4, 2013).
“Energy Perspectives: Fossil fuels dominate U.S. energy consumption – Today in Energy – U.S. Energy Information Administration (EIA).” U.S. Energy Information Administration (EIA). http://www.eia.gov/todayinenergy/detail.cfmid=9210 (accessed September 4, 2013).
Jabusch, Garvin. “Ten Economic Risks of Fossil Fuels | Alternative Energy Stocks.” Alternative Energy Stocks: The Investor Resource for Investing in Alternative Energy Stocks. http://www.altenergystocks.com/archives/2013/05/ten_economic_risks_of_fossil_fuels_1.html (accessed September 4, 2013).
“Renewables Becoming Cost-Competitive With Fossil Fuels in the U.S. | Worldwatch Institute .” Worldwatch Institute . http://www.worldwatch.org/renewables-becoming-cost-competitive-fossil-fuels-us (accessed September 4, 2013).