Low oil prices cause investment in renewables to decrease

Conversely, investments in gas-fired power plants are thought to be the least vulnerable to the low oil price. Despite this, most experts consider the low oil price to be a temporary phenomenon and predict that the price of crude oil will reach $55 at the end of 2016.

Grenoble École de Management’s Energy Market Barometer Reading has gauged France’s energy market experts’ expectations regarding the durability of the low oil price and the consequences for investments in alternative energy technologies. Experts were also asked about the future evolution of prices of CO₂ certificates and four major energy carriers.

Key findings:

• Three quarters of respondents expects the price of oil to increase in five years and to exceed $100 per barrel within 10 years
• The recent developments on the global and national political stage have not moved most energy and CO₂ price expectations
• Experts view the current regulatory environment in France for investments in renewables, e-mobility, smart grids and energy efficiency favourably and expect improvements over the next five years. However, nuclear energy and natural gas will not see their investment climate improved
• Experts chart a progressive yet underwhelming raise in the price of CO₂ certificates in the medium to long term, from currently 8.5 €/ton to €10-15 €/ton in five years and 20-25 €/ton in 10 years
• Prices of electricity, oil and natural gas are expected to rise in the medium term but remain stable over the next six months
• Coal is the only energy carrier for which experts expect a decrease over the next five years

Most experts expect the price of electricity to remain stable over the next six months, but a shift is observed from a short increase (from 25% of respondents to 15% this time) to a short term decrease in electricity prices (from 7% to 14% this time). Over the next five years, the majority of experts expect the price of electricity to increase.

The strong downward trend of the oil price regained momentum in the second half of 2015. More recently, low growth perspectives for China and the promise of more oil supplies from Iran have fuelled the trend. In addition, stronger climate and air quality policies will sustain lower oil prices. Despite this, close to three quarters of the experts expect the oil price to remain stable in the short run but increase over the next five years.

Experts disagree on the coal price outlook, especially in the medium term. Most experts (59%) predict coal prices will remain stable in the short term. Whilst previously experts were split equally on whether coal prices would rise, fall, or remain stable in the medium term, the share expecting a decrease in coal prices in five years is approaching half (45%). Still, 30% expect an increase in the medium term. This is possibly inspired by projections of growth economies, especially in India.

The current price of CO₂ certificates (about 8.5 €/ton at the time of the survey) is low. The current survey shows that experts expect the price of CO₂ certificates to remain at the present low level over the next six months and to increase over the next five and ten years. Despite generally optimistic messages from COP21, current expectations on CO₂ certificate prices are almost identical to those of the previous two barometers, carried out in December 2014 and June 2015.

Neither the success of the UN climate conference, nor the recent European Commission proposal to reform the EU Emission Trading Scheme has affected experts’ prediction of future certificate prices. Their projections keep falling well below what is needed to meet the global climate targets the world agreed to in Paris and stay well below the 37 $/ton the US government is currently using for regulatory cost-benefit analyses.

The project team for the Winter 2015 Energy Market Barometer report included Joachim Schleich (Coordinator), Mélodie Cartel, Laurent Javaudin, Greg Molecke, Mark Olsthoorn, and Anne-Lorène Vernay. The report is based on a survey conducted in December 2015, which included 89 energy market experts from France.