Saturday, July 17, 2010

Larry Hagman of 'Dallas' fame becomes the new face of SolarWorld

The Oregonian article "Larry Hagman of 'Dallas' fame becomes the new face of SolarWorld" (July 13th, 2010) makes no effort to correct an utterly ludicrous statement by a solar energy spokesman:
"When affordable oil gives out, we're in real trouble -- I mean the collapse of civilization, within 15 to 20 years."
If oil companies thought that the price of oil would skyrocket in the next couple of decades, then they would hold on to this storable asset and sell only when the price skyrocketed, causing supply to decrease and current price to rise. This continues until oil companies are indifferent to selling now or later. What does this imply about an oil "shortage" in the coming years? It implies that quantity will fall predictably, based on the shape of the demand curve.  As price rises, quantity demanded falls.  When it becomes optimal, we will substitute into new energy sources.

In the figures below, the red dotted lines represent a theoretical "renewable energy only" world, while the solid red line represents the observed portion of renewable energy use in a world when both renewable energy and nonrenewable energy is available. The solid blue line represents observed nonrenewable energy prices and use in a world in which both renewable and nonrenewable energy are available, while the dotted line represents price and use in a theoretical "nonrenewable energy only" world (click here to enlarge).

We see that the price of energy should go up, in our simple model, at the interest rate, while we use oil. Consumers will buy renewables when they become cheaper than energy (the red-line price in the top figure).  Energy use falls gradually to a stable level (click here to enlarge).

In this model, there are no sudden shocks to oil consumption and no unexpected price increases. Rather, oil prices increase predictably, and the amount of energy we consume falls gradually and predictably. To predict the "collapse of civilization" in an article about new technologies is completely misguided.

1 comment:

  1. If the administration and the left really wants to see solar power be adopted in a widespread way there is a simple way to do it. Pass a law exempting profits made by domestic businesses producing solar power and solar power related equipment from federal taxation and their stocks from capital gains taxation. This would markedly increase the profitability of all aspects of solar power investment and drive people to have an increased personal stake in pursuing solar power as opposed to other sources of power.