To What Extent Is Alternative Energy Performance Linked to Fossil Fuel Energy Prices?

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...it is still too early to draw conclusions about any clear relationship between the performance of solar and wind firms and the prices of oil and natural gas. It is also impossible at this stage to disentangle all of the headwinds facing solar and wind and assert that energy prices play a larger role than other factors...

The recent slump in the price of energy commodities that has accompanied slumps in the rest of the market has reignited an old debate: to what extent is the performance of alternative energy companies linked to fossil energy prices?

People who argue that the two are closely connected implicitly believe that policy-makers and other important economic actors view alternative energy mainly as a hedge against high energy prices, and therefore believe that a drop in fossil energy costs will result in a fall from grace for alternative energy (there is evidence that at least some firms view renewable energy as such, providing credence to this argument).

Those who, like myself, believe that the fundamental performance of firms in the sector is not connected to the price of fossil energy (considerations of input costs aside), argue that the policy commitment behind the growth of much of renewable energy for the past few years has had more to do with political positioning on the increasingly-salient environment file...

It is still too early to draw conclusions about any clear relationship between the performance of solar and wind firms and the prices of oil and natural gas. It is also impossible at this stage to disentangle all of the headwinds facing solar and wind and assert that energy prices play a larger role than other factors.

In my view, if policy commitments to alternative energy are strengthened rather than weakened during this crisis, which looks like it might be the case, it would represent the clearest evidence yet that policy-makers pay little to no attention to energy prices in deciding on support measures for the sector. In any event, what policy-makers believe may not matter much if the IEA is right about global oil supplies. In either case, alternative energy investors win.

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