SemiSerious

I’m not suggesting any cause and effect, but three weeks after trading in my gas guzzling minivan for an economy car rated at 6.2 litres per 100km, gas prices here in Ottawa are set to dip below $0.80 per litre. (Actually, it’s taken a week to get around to finishing this post, and I actually filled up at $0.795 over the weekend.) That’s territory that’s been unknown to the Canadian national capital region’s drivers since the early days of 2007. The EIA also reported that the average US retail price for gasoline dropped below US$2.40 per gallon for the first time since early 2007.

It seems that even experts in this field are not able to explain the connection between gas prices at the pump and world prices for oil, but there must be some loose correlation, maybe with a random phase term thrown in. Anyway, the gas price we are currently enjoying encouraged me to take a look at oil which appears set to drop below US$60 per barrel, a price that has not been seen since March of 2007.

So what has oil got to do with semiconductors? And no, this is not another article about Abu Dhabi buying AMD’s fabs. Global warming is a big concern and a hot button topic without a doubt. Biking to work in shorts in November is one data point supporting the theory that we are heating up. (Last winter in Ottawa, though, was an entirely different story.) It’s not just the concerns over greenhouse gas emissions and their effect on climate change that’s driving renewable energy sources like solar power though. Government policy everywhere from China to Europe has been shaped by oil price shocks in the past and the oft-referred to age of “peak oil” that is reportedly upon us. But with petroleum prices now falling, many have begun to wonder how interesting photovoltaics and other renewable energy sources will be, at least to investors.

There is no doubt that rising oil prices in the 1970’s kick-started research into photovoltaics. This is seen in the chart below that tracks world oil price (yearly average) against the number of patent applications submitted to the USPTO. With oil now dropping, what will happen to the investment in photovoltaics?

Fortunately, there is some earlier history of oil price relaxation to draw on for an answer. Going back to the eighties, oil dipped from a high of $34 in 1983 to around $13 in 1989. But interest in photovoltaics - at least as measured by patent activity - did not decline. In fact, patent applications continued to increase despite the drop in oil price. But why? It appears related to government policy as the US Congress extended legislation from the seventies to continue investment into various forms of renewables. Bill Clinton and Al Gore also wasted little time pushing renewable energy at the DOE with their appointments to that body in 1993.

The first big oil price shocks may have spawned the renewable energy industry, but what was happening around 2000 when USPTO applications began to take a nosedive? Backlogs at the patent office put a negative bias on the data, so it often appears that activity is slowing drastically as the graph approaches today’s date. Once applications in the queue finally get published, the sharp drop in patents softens or disappears. Unfortunately for analysts like me, you need to travel into the future to get that accurate data. To be on the safe side, I cut this graph off after 2005. But there’s still a dramatic decline in activity between 2000 and 2005. Why?

At a time when interest in photovoltaics appeared to be waning, oil was simmering in preparation for the insane rise in price that reached a peak of nearly $140. And now, the price has been spiralling down with the rest of the world economic indicators. Where does that leave photovoltaics?

I think the bottom line is that the idea of dependence on unpredictable, uncontrollable foreign oil and maybe even the notion that the end of the world supply might be in sight has prompted the governments of several powerful countries to enact strategic programs that have established a solid future for photovoltaic development independent of a high spot price for oil. I don’t think that even the most ardent supporter of the green movement would claim that any present-day renewable energy technology could displace traditional power plant fuels competing head-to-head on an equal economic footing. It takes time to transition, so here is one place where governments have an important role to play in ensuring that photovoltaics and other renewable energy sources are ready to meet the demand when we no longer have an option.

But there are certainly fears that the feed-in tariffs and other subsidies that have kept the solar ball rolling could be under pressure. These days, there’s lots of bad economic news and speculation of even more fear and uncertainty around the corner. Faced with the difficult times and relatively short political terms of office, governments will find it harder to continue a longer term strategic view when it comes to energy. If things get as bad as some are predicting, even a newly elected visionary US president may have to postpone spending on renewable energy.