The fallout from the weekend’s failed Doha oil deal continues. You have to keep in mind that Saudi Arabia and Iran are basically engaged in proxy wars in Syria and Yemen. Yet they’re both trying to “collaborate” on oil prices to stabilise the price and generate much-needed revenues (to buy arms and fight one another in Yemen and Syria).
A twist in the tale comes from an apparent changing of the guard in the kingdom. Eighty-one-year-old Oil Minister Ali al-Naimi used to speak for the kingdom on all oil matters. Whether he was the voice of decisions made behind the scenes, or the man making the decisions, you knew his word was the last word on Saudi investment decisions and production levels.
But it’s now clear that Deputy Crown Prince Mohammed bin Salman is calling the shots. He’s second in line to the throne. And he sees quite clearly that American patronage – at least under the Obama administration – is no longer a certainty for the kingdom. The “oil weapon” is now being levelled at other producers, not consumers.
All of this, of course, is playing out in the context of rapidly declining costs in the solar sector. Capital costs for installed solar power has fallen 60% in the last four years, according to a new report from Deutsche Bank. The report claims costs could fall another 40% in coming years.
Technology and cheaper manufacturing tend to drive costs down. India’s energy minister acknowledged that earlier in the week. He claimed solar power generation (in India) is now cheaper than coal power generation. He’s talking about electricity.
If he’s right, it’s a big moment in energy markets. Previous attempts to make renewables cost competitive with hydrocarbons relied on subsidies. That is, they made coal and oil more expensive with taxes and regulations and threw government money at renewables. Rigging energy prices to favour renewables is one way to change incentives in the market place.
You won’t see true and disruptive change in the energy markets until renewables are price competitive on their own merits, without subsidies. Part of that process is seeing breakthroughs in efficiencies in solar (something technology is already doing). The other more straightforward part is what Deutsche Bank has reported: declining capital costs.
Category: Economics