Alternative energy will challenge the dollar rate and crude oil prices
Dollar strengthening hit the alternative energy market.
At the beginning of January FutureMetrics LLC Company's researches published a number of reports analyzing the current situation in alternative energy market due to strengthening of dollar and reducing the world prices for petroleum. The most vulnerable appeared to be wood pellets production sector.
According to available information most contract payments are in US dollars, according to weakening of dollar and euro, dollar and pound currency pairs lead to increasing the prices for pellets in these currencies. Some exchange risks can be sidestepped but if dollar evidently keeps its rise in the cost of pellet production the profitability will reduce.
So weakening pound may lead to reducing the price for one ton of pellets in dollar equivalent because only lowering the price could assist public companies minimize their costs. From another side it affects both existing and developing American production.
The researchers think the developing projects should be re-evaluated considering project planning, training staff and logistic costs. The existing projects should improve all stages of production for reducing the cost of production and increasing reliability and production work order.
The same situation can be observed with weakening euro. American producers exporting pellets to Euro union have to adjust their plans to be the part of this market in future.
Plunging crude oil quotations became the part of this process. Now the prices for petroleum are in so-called "blind spot" meaning that one energy unit cost produced by firing petroleum is equal to one energy unit cost produced by firing pellets. Considering excessive supply that appeared during the period of 2013-2014 this situation might be getting worse.
According to above mentioned points Sergei Kozlov, the leading analyst of Ukrainian biofuel portal pellets-wood.com considers that certain slowdown in the growth rate pellets production market is possible as well as market bust if the prices for crude oil keep on falling.
Still there is another point of view on this situation. Lyndon Rive, a competent expert of alternative energy market supposes that alternative energy market bust is a temporary effect and has no connections with falling prices for crude oil. The same opinion has sultan Al-Jabar, the UAE Minister and the head of Masder Innovation Company in UAE. He announced that the time when the prices for the crude oil influenced alternative energy market had already passed. Now it is an independent branch of industry occupying 19% of world power balance that develops according to its own rules and obey its own logic. As Al-Jabar mentioned last year the amount of investment into renewable energy increased in 16% and reached $310 billion. "The production volume of solar and wind energy power has grown in 26% and amounted to 100000 MW. This proves that the technical progress runs in outstripping growth rate", - says Mr. Al-Jabar.
The main reason to support this point of view is wide developing of technologies that are constantly reducing the cost price. Some branches of alternative energy power have their own financial safety margin to keep the competitiveness including the situation with the current level of prices for the traditional energy sources.
It is worth to mention the support of alternative energy by the state governments. In 2014 144 countries had specific plans for alternative energy development and implementation with the particular target. Most of these countries consider the alternative energy sources to be strategically important. For instance in 2014 Denmark inhabited the use of oil-product boilers and set the aim to convert the full country supply with power generated by alternative energy sources.
Author: Ivan Prokhorov
