NextBillion - An Initiative of the William Davidson Institute at the University of Michigan

By Cherry Reynard

The low oil price brings obvious problems for the oil majors, the shale industry and various others, but could it also create difficulties for the renewables sector? Previous oil slumps have seen governments move away from support for renewables and consumers turning to the cheapest option. Is there a danger of this happening again?

A low oil decreases price competitiveness for renewable energy. This has a number of immediate impacts: governments find it more difficult to subsidise renewable energy initiatives as they are relatively more expensive, while consumers have less incentive to switch out of existing fossil fuel options and embrace alternatives. They are also less inclined to make fuel savings and encourage efficiency.

However, there are a number of reasons why this time may be different to previous oil slumps. Renewable energy looks much more competitive on its own terms.

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