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Page added on May 30, 2006

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Renewable Energy Must Be Competitive With Oil At $30 A Barrel

30th May 2006. Cambridge, UK: Recent turmoil in the commodity markets illustrates just how vulnerable the renewable energy sector is to any easing of oil prices. According to Cambridge UK analysts CarbonFree, environmentally friendly energy products and technologies, even those based on photovoltaic solar cells, will need to produce energy that is competitively priced in a market where oil costs as little as $30 per barrel. At this price, renewable energy produced on either a large or small scale will gain traction and may eventually displace fossil fuels as a primary energy source.

During the last two years the market for renewable energy technology has been driven by two key factors: concerns that the burning of fossil fuels contributes to global warming, and rising domestic fuel bills. Fears over spiralling energy costs have caused a degree of investment overshoot. Based on long term projections of rapidly rising energy prices householders approaching retirement saw a time when they could no longer afford to heat their homes. For them especially purchasing a small-scale renewable energy system seemed an ideal long-term investment.
As oil prices ease, the incentive to invest in renewable energy technology is reduced. The overshoot that inflated the market for renewable energy is replaced by a second overshoot based on anticipated energy price reductions. Eventually this negative sentiment will impact on the renewable energy sector.
Heavily exposed in the current investment climate are hedge funds that are using the renewable energy sector to offset risks in markets depressed by rising oil prices. While industry in general may benefit from a lower oil price this may not compensate for a heavily funded renewable energy sector that comes to a dead stop

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