Energy prices, "Peak Oil", and cleantech investing
The idea is that many emerging clean energy technologies (solar, fuel cells, etc.) are still higher cost than incumbent fossil fuel-based technologies. And thus, as the cost of clean energy technologies continues to come down, any significant rise in fossil fuel prices only accelerates the market attractiveness of clean energy.
It's not quite that simple. Oil-based fuels aren't the comparable across all clean energy technologies. For solar, for instance, a more appropriate comp would be natural gas and coal-fired electricity generation. Oil prices are not entirely linked to those prices.
Nevertheless, cleantech investors are unsurprisingly very interested in the long-term trajectories of energy prices, and the most visible such prices are oil. Some subscribe to the idea of so-called "Peak Oil", that the production of oil is peaking and will decline, in the near term. While energy demand is unlikely to fall, if fossil fuel production goes down, the energy production must come from somewhere, and new energy technologies are a likely beneficiary. Along these lines, the ongoing debate between oil optimists and peak oil advocates (read parts one and two) is important to follow.
But cleantech investors also need to watch more than just oil prices as they think about the long-term viability of energy tech investments. Natural gas prices have also been rising as well. And new coal generation capacity has been lagging demand, at least in the U.S. But for how long? Or will increasing emphasis on policies to address climate change permanently raise these prices as well?
The point being, it's possible to envision scenarios where energy prices continue to rise in oil-based energy markets (e.g., transportation), but fall back again in natural gas and coal-based energy markets (e.g., grid electricity). Or vice versa. Or where both rise permanently. Cleantech investors need to make their own judgements and be ready for any number of possibilities.
[10/14 update: I received the following good thoughts from another cleantech investor who asked to remain anonymous:
"People seem to think that because the price of oil is high that this benefits alternative energy companies and technologies across the board, but that's not true.
In the energy sector, there are separate commodities, which are not fungible: oil, natural gas, and eletricity.
The price of oil does not directly affect the price of electricity - only 2.5% of electricity in the US came from burning oil in 2004 - whereas 50% came from coal and 18% from natural gas.
Therefore, adoption of solar PV does not depend on the price of oil but on a) the retail price of electricity and b) government incentives and mandates (buy-downs, RPS)."]