The Effect of Oil Price on Alternative Energy Growth

THE EFFECT OF OIL PRICE ON RENEWABLE ENERGY GROWTH 1Does Oil Price plunge affect alternative energy growth? Evidence from Dynamic Panel ModelByIshaya Jonah Tegina Tambari Ph.D. Research Student Department of Economics and Finance Portsmouth Business School University of Portsmouth, UKPage | 1 THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH 1. IntroductionThe global energy industry is focusing on the challenges posed by the fossil-based energy sources with a view to reducing carbon emissions (Price et al., 2001). This shifts the world’s energy policy toward alternative energy. The result is the formation of the renewable energy technologies such as biofuel, which contributes significantly to the reduction of GHG emissions and the security of the energy supply (Pandey, 2002). In this regard, Wang and Nakata (2009) observe that the high oil price is a key determinant for formulating renewable energy and improving energy efficiency. However, Adeyemi and Hunt (2017) observe that in the past two years, the international oil prices plunged from U.S $114 in June 2014 to just $28 in February2016, and about $50 in March, 2017. The declining energy prices is promoting renewed interest in the literature that analyses the causes of energy price plunge and its implications on the macro economies of nations and new energy policies. Additionally, the declining oil prices has renewed new interests on its effect on the microeconomic vigour of the renewable energy technological development as well as the challenges and opportunities it poses for energy security and climate change mitigation (Brown et al., 2011). In view of the Intended Nationally DeterminedContributions (INDCs) agreement reached during the December 2015 Conference of the Parties in Paris, this paper attempts to shed more light on the matter by determining the correlation between the oil prices and the investments in alternative energy.The BP. (2016) review suggests that the fossil fuels will continue to supply 75% of world’s energy needs for several decades to come. Amongst these fuels, oil is used widely. As the economies of many developing countries and their populations expand resulting in the growth of the middle-income class and car ownership, Bloch et al. (2015) argue that the world will continue to witness a sustained growth of the oil industry. The effect is that the environment will2 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH continue to suffer from global warming. Rogelj et al. (2016) assert that currently, the Paris 2015INDC agreement seeks to limit the earth’s temperature increase to just 2°C above the temperatures at the onset of the 20th Century by demanding that countries cut their carbon emissions by half. To achieve this goal, there must be a drastic reduction in fossil fuels usage. A notable surprise is that the carbon emissions continue its upward trend at alarming levels despite the slow growth in the world’s economy (Rogelj et al., 2016). The International Energy Agency(2014b) warns that without a drastic transformation in the current climate and energy policies, the global average temperatures will increase by 3.6°C or more in the long-term.It is in this context that this study suggests that clean energy is positive news to the world.Renewable energy includes the hydropower, nuclear energy, and other alternative energy sources such as the wind, solar and biofuel technologies. In embracing the alternative energy sources, the renewable energy usage increased from 12.4 - 18.7% during 1973 - 2008 because of expansion of the sector (Sisodia et al., 2015). They observe that the growth of renewable energies such as solar power, the wind, geothermal, and biomass energies continue to keep pace with the global energy demands. Sisodia et al. (2015) further argue that enacting policies on clean energy technologies and promoting their market share resulted in the annual growth of 20 and 35% in the wind and solar photovoltaic energies respectively since the year 2005. This paper focuses on the relationship between oil prices and alternative energy (biofuels) developments, which constitute an element of climate change mitigation policy. Biofuels were first used, as motor fuel(bioethanol) in 1860 in Germany and soon after, biofuels became the main rival for petroleum.But the abundance and the low price of fossil fuels had severe impact on the use of biofuels.Decades later, in 1970s, the shortage of fossil fuels due to the geopolitical conflicts, and the subsequent rise in the price of crude oil in 2000s, alongside energy security and the increased3 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH knowledge in matters of climatic change and pollution saw the focus shift to overall greenhouse emissions and the adoption of renewable energy. Climate change concerns once again attracted the attention of policy makers to the use of biofuels. As a result of investment in biofuel production, the share of biofuels among the total renewable energy sources has increased since the beginning of the new century. This study investigate the effects of oil price on the growth of biofuels as the alternative energy of choice and address four main questions that have been the focus of recent discussions: What is the relationship between renewable energy and oil prices? What is the correlation between oil prices and climate change mitigation? How does the plunge in oil price affect the investment in the alternative energy sector? To what extent do the low oil price and the resulting climate change affect the energy policy formulation by the developing nations?The rest of the paper is structured as follows: section 2 is a comprehensive review of the literature that are relevant to the topic on the effects of the falling oil prices on the growth of the renewable energy sector. Section 3, on the other hand, discusses the methodology of this research and the theoretical framework in this study. Section 4 uses the AB dynamic panel model to correlate the data of oil prices and the investment in the alternative energy sector over 12 years from October 2004 to October 2016. The study uses the benchmark WilderHill Clean EnergyIndex data to measure the market performance of the renewable energy firms. Finally, the last section discusses the implications of the energy policies on the gross domestic product of the developing countries and draws conclusions on the outcomes of this study. Additionally, it proposes the areas of the study that require further research.4 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH 2.0. Literature Review2.1. Energy DemandAccording to Brown et al. (2011), the energy price greatly influences the choice of the energy source preferred by consumers. They suggest that the price of a particular energy asset heavily depends on the demand of that energy asset leading to the limited demand for alternative energy sources. Sisodia et al. (2015) stated that 32.6% of the world’s energy comes from crude oil whose uses are mainly for heating and transportation purposes and only 8.5% of the energy needs comes from the renewable energy sources used mainly in generating electricity. Ernst andYoung (2013) suggest that 20% of the global electricity comes from the alternative energy, which is the third most important source of energy. This compares well to oil sources that account for just 4.5% of electricity production. Historically, the alternative energy prices were above the fossil fuel levels since the former involved a cost disadvantage compared to oil. The high prices discouraged the use of clean energy by companies (Ernst and Young, 2013). There are however considerable exceptions when one considers the number of firms going green and whose preference for clean energy therefore do not depend on the price they are willing to pay to preserve the environment for posterity.2.2. The Role of Energy Demand Models in Policy FormulationAs early as the 1970s, the energy sector played a pivotal role in formulating policies especially after the oil crisis of this period. The role of energy in the micro economy has increased the number of studies in energy demand to gain more understanding of energy consumption patterns5 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH and the responses it generates because of these external shocks (Adams and Shachmurove,2008). The forecasting of energy demand is presently an integral part of energy planning as well as strategies and energy policies formulation. The task though is very challenging for the developing countries because of the limited data, institutions, and the applicable models (Adams and Shachmurove, 2008). In reality, the projected energy demands often deviate from the real demands because of limited model structure and wrong assumptions (Koomey, 2002). For example, the Craig et al. (2002) study indicated that many forecasts of energy demand overstated their figures by 100% since models used in analysing data have several limitations. Armstrong (2001) warns that the perception that the complex models with broad data input give the most accurate results is not necessarily true since some simple models produce more accurate results than the complex models. A good energy demand model should be able to address whether the model supports the development of a coherent situation and have the ability to tackle uncertainties (Koomey, 2002).According to Harris and Sollis (2003), there are several reasons why many of the energy demand models produced inaccurate results. Laitner et al. (2003) proposes the following reasons for the inaccuracy in demand forecasts. First, many models heap consumers into sample groups, but just the views of a few members of the sample represent entire populations, which may not be accurate. Secondly, many models do not cover completely the effects of social structures and environment in the study group. Thirdly, most models lack sufficient technological tools. Finally, some models make unrealistic economic assumptions that distort study outcomes. Additionally, most of the developers of these models originate from the developed economies and their models may not suit developing economies (Urban et al., 2007). 6 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH 2.3. Energy SupplyPresently, the technological improvements in renewable energy production have reduced the cost gap between the alternative energy sources and their fossil fuel counterparts. For example, the cost of solar and wind power generation have dropped annually by 5% in the last decade (Bloch et al., 2015). They expect the technological improvements in the energy sector to continue, while electricity from oil generation would become increasingly expensive as the renewable energy companies incur less cost in their extraction process. Since the energy production cost influences its market price, the world expect a major decline in the price gaps between the renewable energy and fossil fuels, which will greatly increase the demand for the alternative energy (Bloch et al., 2015).The last decade saw the supply of the alternative energy surge and investments in this sector hit record levels. The International Energy Agency (2014) report attributes this change to the various treaties that forced countries to mitigate climate change by increasing their consumption of renewable energy. The Kyoto protocol, the International Climate Agreement at the UnitedNation Framework Convention on Climate Change (UNFCCC) Conference (COP21) in Paris inDecember 2015, and the Intended National Determined Contribution (INDC) forced their member countries to ensure that the renewable energy market share reaches 20% by 2020. The act has resulted in the significant increases in alternative energy consumption witnessed in the last decade (IEA, 2014). 2.4 Factors that Hinder Clean Energy SupplyThe renewable energy supply though is often erratic, which explains why the alternative energy sources often struggle when compared to oil (IEA, 2014). Renewable energy production7 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH manipulates the natural forces. A key disadvantage of the adoption of natural forces is that it is virtually impossible to store, move, or managed for future use. Additionally, the occurrence of the natural forces often varies in time. It means that weather conditions dictate electricity generation if one relies on renewable energy sources. Whenever there is total absence, the electricity generation ceases. With the improvement in production technologies, one can minimise the risks since the power production systems would require less input to be operational(IEA, 2014). A case worth mentioning here is the modern wind turbine that starts to produce electricity at wind speeds that are a third or 50% lower i.e. 3 - 4 m/s. Most conventional models would switch off when wind speed falls below 25m/s for over 5 seconds (IEA, 2014). Electricity consumption is on production basis as it cannot be stored. Any excess electricity produced goes to waste. The supply of electricity from renewable energy sources in a regional market depends on the power grid capacity. Additionally, Deloitte (2011) report indicates that to transport the generated electricity to its destination requires proper infrastructure. According toCoenraads et al. (2008), about 30% of the renewable energy dependent electricity is lost due to insufficient grid capacity. Another challenge that plagues electricity supply is that the price of power in the regional markets depends on the prevailing local market conditions in contrast to oil, coal, and gas markets. These fossil fuel sources are easily transported making them globally traded commodities. Inability to transport electric power over long distances further amplifies the limitations of renewable energy. For a company to be highly dependent on the renewable energy sources for its daily operations involve a significant risk because the cost of an erratic power supply is often great (Brown et al., 2011). The threat limits the renewable energy demand.Additionally, the high installation costs for the alternative energy facilities means the renewable energy based electricity is less competitive compared with the power generated by conventional8 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH methods (Ernst and Young, 2013). The integration of the renewable energy sources into the market depends on the subsidies that come in the form of tax deductions and government funding (Ernst & Young, 2013). The effect is that the growth of the renewable energy sector depends on a nation’s economic development since during recessions, most governments remove the subsidies causing the demand for the alternative energy to decline, but the subsidies often rebound back in economy boom period (Ernst and Young, 2013).According to Font (2012), carbon emission is currently the leading determinant of the choice of an energy mix. Since the renewable energy substitute the CO2 emitting fossil fuels, their usage in electricity generation are emission-free and eco-friendly. They therefore pose no threat to the environment. As focus now shifts to the environmental conversation through climate change mitigation, the demand and supply of clean energy will have several disadvantages since recent surveys indicate that companies prefer eco-friendly energy sources, which they willingly pay a premium price to obtain (International Energy Agency, 2014).The supply of clean energy also depends on the availability and price of rare-earth metals since the production of alternative energy depends on them. For instance, according to Milmo (2010), turbines construction depends on the metal neodymium, which China supplies 97% of the global needs. 3. METHODOLOGYIn the past decade, the renewed interest in renewable energy across the globe led to a significant number of investments in this sector led mainly by companies from the United States, Germany, the United Kingdom, Japan, and China. On the other hand, India topped the investment in wind power and solar photovoltaic generation (IEA, 2014). This section of the paper looks into the9 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH modalities of establishing the correlation between the stock prices of such investments and the oil price.3.1. Methodological FrameworkThis study proposed to employ a long run forecasting approach to determine the relationship between oil price and the stocks of the alternative energy companies. According to Hamm andBorison (2006), in as much as the long run forecasting may have a minimal contribution to academic research, nevertheless, it constitutes an important tool for research. The alternative energy market is a vibrant one internationally but the risk from a number of factors such as fluctuations in demand, generation prices, oil prices, fuel availability, import prices, and etcetera, often pose threats to investments. Hamm and Borison (2006) further suggest that the three important characteristics of a long run forecast include accuracy, efficiency, and usefulness.They also observe that the long run forecast models utilize the information of futures market prices, historical market prices, the supply and demand simulations data, as well as the expert judgment on futures technologies and policies. The significant variables that greatly influence the futures of renewable energy include first, the uncertainty in government policies. The later political interventions and what effect they would have on the futures alternative energy prices are always uncertain due to unknown or expected future changes in policies (Hamm and Borison, 2006). Secondly, a technological shift can also greatly influence the future renewable energy prices since nations often embrace technological innovations or the new more sustainable machinery. Therefore, the countries under the EuropeanUnion, the United States, and China earmark large funds for research to develop such innovations (Hamm and Borison, 2006). 10 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH 3.2. MethodologyThis study utilised the AB dynamic panel model approach to investigate empirically the correlation between oil price and renewable energy companies stock prices. The models usually encompass at least one lagged dependent variable that allows the modelling to adjust partially.For simplicity, Baum (2013) suggests that a model that contains one lagged dependent variable and also one regressor X is expressed as: yit = β1 + ρyi,t−1 + Xitβ2 + ui + ϵit (1)The choice of the model stems from its ability to correlate the regressor(s) X with the error termϵit. It determines the correlation between the differenced lagged dependent variable and the disturbance process where the former contains yi,t−1 and the latter contains ϵi,t−1 (Baum, 2013).Additionally, the AB dynamic panel model is ideal in cases of the time-invariant regional characteristics (fixed effects) witnessed in this study such as geographical and demographic factors which may be correlated with the explanatory variables. It is ideal for long run forecasts but also estimates short-term outcomes (Baum, 2013). The AB dynamic panel model also takes care of the problems related to the presence of the lagged dependent variable yit-1 as a regressor. Since this study investigated the effects of the long run forecasts of oil price on the renewable energy stocks, it included a data interval in the year 2008. This allowed the researcher the freedom to adjust fundamental changes in the model. Therefore, this study also included both the monthly and quarterly data intervals in its statistical analysis since Hamm and Borison (2006) concur that the quarterly data sets offer an ideal interval in the long-term analysis of the changes in both oil and alternative assets. However, this approach limited the observations to 28 and 26 respectively for the 2 periods under consideration. Therefore, this study found it necessary to11 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH perform a similar analysis by employing the monthly interval data, which increased the available amount of observations to 84 and 78 respectively. 3.4. DataThis study measures the renewable energy stock market performance by employing the 1999WilderHill clean energy index (ECO) data for the period from the third quarter of 2006 to the fourth quarter of October 2016 depicted in Table 1. The choice of ECO as the preferred energy index is because it has a reputation as being the first among such indices that aim to track the stock prices of clean renewable energy companies hence its reputation as the benchmark index.Individual investors do not buy this index directly. However, one can invest in an exchange- traded fund (ETF) that mirrors this index. For example, in 2005, one such fund with a symbolPBW began to trade its shares on the American Stock Exchange. The fund’s manager,PowerShares Clean Energy Portfolio (PBW), tracks ECO that involves some 40 companies in the renewable energy sector, the WilderHill New Energy Global Innovation (NEX) tracks global firms dealing in clean energy, and the PowerShares Clean Energy Portfolio symbol PBD activities mirror those on NEX. Additionally, the WilderHill Progressive Energy Index (PHPRO) reduces CO2 emissions and other pollutant use progressively, while PowerShares ProgressiveEnergy Portfolio (PUW) mirrors the activities of PHPRO, and WilderHill NASDAQ OMXGlobal Energy Efficient Transport Index (HAUL) tracks the innovative and energy efficient transportation (WilderHill, 2016).12 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH Table 1: ECO, PBW Share Data (WilderHill, 2016).Record Price/Share($) Ordinary Date Income 12/20/2016 0.00783 0.00783 9/20/2016 0.02213 0.02213 6/21/2016 0.03481 0.03481 3/22/2016 0.03387 0.03387 12/22/2015 0.00595 0.00595 9/22/2015 0.02263 0.02263 6/23/2015 0.0329 0.0329 3/24/2015 0.01093 0.01093 12/23/2014 0.05703 0.05703 9/23/2014 0.04693 0.04693 6/24/2014 0.03804 0.03804 3/25/2014 0.01387 0.01387 Record Price/Share($) Ordinary Date Income 12/24/2013 0.05721 0.05721 9/24/2013 0.02467 0.02467 6/25/2013 0.05712 0.05712 3/19/2013 0 0 12/26/2012 0 0 9/25/2012 0.02713 0.02713 6/19/2012 0.11106 0.11106 3/20/2012 0.02346 0.02346 12/20/2011 0.02561 0.02561 9/20/2011 0.09229 0.09229 12/19/2006 0.03675 0.03675 6/20/2006 0.01037 0.010374. DATA ANALYSIS AND DISCUSSIONI.1. Impulse Response OutcomeThis section presents the results obtained by analysing the impulse response functions (irf). The latter traces the receptiveness of dependent variables in the AB dynamic panel to shocks to every13 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH variable. The irf analysis employs the symbols M and Q to refer to the monthly and quarterly data respectively. The analysis is based on the historical performances of both ECO and PBW indices from October 2004 to October 2016 depicted in Figure 1. Figure 1: ECO, PBW Historical Index Performance (WilderHill, 2016).The impulse analysis is broken into two parts where the first section covers the period from 2004 to 2007 while the second section analyses the data for the period from 2009 - 2016. The world’s financial crisis in 2008/2009 resulted in a sharp decline in the performances of the energy indices and serves as a break in this study. A similar fall again occurred in 2014. The falls result from net oil export surpluses from the oil exporting economies, which increase supply with the direct negative effect.14 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH I.1.1. Period from 2004 to 2007Figure 2: Impulse Response Functions (Henriques and Sadorsky, 2008, p.1007)The impulse response functions during the period showed significant differences depending on the adopted data interval since statistical tests indicated that the oil price and the American StockExchange index cointegrate when one uses the ECO quarterly data. Since the AB dynamic panel model does not analyse stationary data, shocks often influence the dependent variable in the long run. However, when the model uses the monthly data, which are stationary, the shocks tend to15 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH disappear. The different irfs for this period appear in Figure 2. The latter similarly shows that any shock affecting the price of crude oil produces a permanent positive effect on oil price(Henriques and Sadorsky, 2008). Similar outcome applies for a shock in the ECO index, which also has positive effects on the growth of the NEX index in the long run. The interesting picture that emerges is that a shock occurring in any of the energy assets automatically affects the other assets’ growth. I.1.2. Period Between 2009 and 2016The entire period shows the oil price shocks in oil price do not affect significantly the PBW index regardless of the data interval employed. However, any shock that affects the PBW index positively increases the crude oil prices, before this shock fades away. Similarly, any shock in the NEX index produces an increase in the oil price. However, the oil effect on the NEX index depends on the data interval under consideration since oil price shocks do not affect significantly the asset prices under Mirf, but affects significantly and negatively the NEX index when one uses quarterly data. I.2. Statistical Data Analysis and DiscussionFigure 1 indicates the PBW value doubled between the year 2004 and 2007 (WilderHill, 2016).Figure 2 similarly shows the upsurge in clean energy stocks during the 2004 - 2007 periods. In the same period, the clean energy assets peaked in 2008 when oil price hit the $140 mark before all the energy stocks began to decline. The mid-2000 rise in energy stocks followed the burst of the innovation firms’ bubble of early 2000 (Henriques and Sadorsky, 2007). The subsequent crash had a significant negative effect on the stock prices of the renewable energy companies and a similar effect on all the WilderHill and PowerShares indices (WilberHill, 2016). After this16 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH decline, though, there was a slight recovery in the clean energy stocks in the period from 2009 to2011, before the further decline in the clean energy stocks to date. WilberHill (2016) explains the rise and decline in the renewable energy stocks value. First, economic growth is a significant factor in the growth of the renewable energy sector since renewable energy being costly than the fossil-fuel energy sources its market cannot develop without subsidies. Therefore, the economic crisis of early 2000 significantly affected the growth of clean energy sources but this changed in2003 when the global economic growth recovered (Henriques and Sadorsky, 2007).Figure 2: PSE, ECO, Oil Chart (Henriques and Sadorsky, 2008, p.1003).Table 2 summarises the continuously compounded weekly returns statistics for some of the ECO index. It demonstrates the potential effects of declining oil prices on the ECO stocks’ returns by analyzing the stated parameters.17 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH Table 2: Statistic for ECO Weekly Returns (Henriques and Sadorsky, 2008, p.1003).Statistic for ECO Weekly Returns ($)Parameter PBW NEX PHPRO OILMean 0.02 0.03 0.04 0.25 Median 0.2 0.09 0.1 0.55 Maximum 18.18 13.54 10.18 10.62 Minimum −13.79 − 12.7 −7.84 − 23. 7 59 S.D. 4.31 3.48 2.2 4.4 Skewness −0.03 0.03 0.21 − 0.7 2 Kurtosis 4.14 4.6 5.76 5.35 Jarque-Bera 18.25 35.51 108.6 105.2 8 Probability 0 0 0 0 Nobs 334 334 334 334 Sharpe ratio −0.06 −0.05 −0.05 0.32Going by the adjusted R-squared values in table 3, the correlation between the different clean energy assets is insignificant. This uncertainty in the connection, whether the old renewable energy technologies improved the governments’ subsidies resulting in viable alternative energy sources, or government subsidies significantly improved the technological improvement, there was a significant increase in the countries granting alternative energy subsidies (Henriques andSadorsky, 2007). 18 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH Table 3: Market risk comparisons (Henriques and Sadorsky, 2008, p.1004)Market risk comparisons PBW PBW NEX NEX Constan 0 0 0 0 t −0.22 −0.35 −0.33 −0.37 Market 1.4 1.39 1.4 1.41 15.06** 14.83*** 16.80** 17.06*** * * Oil 0.11 0 3.12*** 0.09 Rate 0.01 −0.03 1.03 −1.26 Rbar2 0.51 0.52 0.78 0.78 DW 2.02 2.02 2.15 2.16 F(p) 0 0 0 0*** denotes a test statistic of 1% significance, Rbar2 is the adjusted R-squared value, while DW denotes the Durbin–Watson statistic, and F(p) is the probability value for a F test of all slope coefficients equal to zero (Henriques and Sadorsky, 2008, p.1004).Harris (2006) observes that 48 countries globally adopted some form of a clean energy production policy by the year 2005, which doubled the 2002 figures, and 2007 saw 18 additional countries adopt a clean energy policy (Duncan, 2007). Additionally, cost reduction measures together with the government subsidies made the profits of the renewable energy companies soar as evidenced by the exponential growth in 2007 and first quarter of 2008 in Figure 1. This empowered the renewable energy sector to compete effectively with the fossil-fuel energy sources due to a moderate reduction in the prices of the alternative energy sources, especially in the solar photovoltaic industry (WilderHill, 2016). 5. CONCLUSIONS19 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH The period covered in this study was a time of turbulence in the global economy. The study found a moderate growth in both oil prices and renewable energy stocks before the global economic crisis of early 2000. This study interpreted the results obtained by the AB dynamic panel model by employing appropriate economic theory in each case. The AB dynamic panel model results show that that the growth of the clean energy assets remained unaffected by the growth of another asset in the same portfolio as well as the changes in the price of crude oil. This applies for the both periods under this study. There is, though, a moderate correlation in the two groups of assets during 2004 to 2007 period since the increase in the GDP of most countries had a positive effect in the growth of both sets of assets. However, the subsequent slow growth of the global economy due to the economic slowdown in China has dampened the demand for crude oil, resulting in depressed prices in both oil and clean energy prices. Therefore, the findings of this study rejects the null hypothesis of the financial crisis because of the change in the relationship between crude oil prices and those of the clean energy stocks.20 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH ReferencesAdams, F. G. and Y. Shachmurove (2008). Modeling and forecasting energy consumption in China: Implications for Chinese Energy Demand and Imports in 2020, Energy Economics, 30, 1263-78.Adeyemi, O. I. and L. C. Hunt, (2007). “Modelling OECD industrial energy demand: Asymmetric price responses and energy-saving technical change, Energy Economics”, 29, pp. 693-709.Armstrong, JS, (2001). Principles of Forecasting: A handbook for researchers and practitioners, Norwell, MA: Kluwer Academic.Baum, C. F. (2013). Dynamic panel data estimators. Applied Econometrics, EC823, 88.Bloch, H., Rafiq, S., & Salim, R. (2015). Economic growth with coal, oil and renewable energy consumption in China: Prospects for fuel substitution. Economic Modelling, 44, 104-115.Brown, A., Müller, S., & Dobrotkova, Z. (2011). Renewable energy: Markets and prospects by technology. IEA.Coenraads, R., Reece, G., Voogt, M., Ragwitz, M., Held, A., Resch, G., et al. (2008). Progress: Promotion and growth of renewable energy sources and systems. European Commission, DG Energy and Transport.Craig, P. P., A. Gadgil and J. G. Koomey, (2002). What can history teach us? A retrospective examination of long-term energy forecasts for the United States, Ann. Rev. Ener Envi., 27, pp. 83-118.Deloitte, (2011). Alternative thinking 2011. Deloitte.21 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH Duncan, E., (2007). Cleaning up: a survey of climate change. The Economist 383, 8531 (June 2, 2007).Ernst & Young. (2013). Renewable energy country attractiveness indices. Ernst & Young.Font, V., (2012). Studies Cite Increased Demand for Wind Power, Other Renewables. Renewable Energy World.IEA. (2014). World Energy Outlook. Paris: International Energy Agency (IEA) . https://www.iea.org/publications/freepublications/publication/WEO_2014_ES_English_WEB.pd f.Hamm, G., and Borison, A., (2006). Forecasting long-run electricity prices. The Electricity Journal 2006; 19(7), 47-57.Harris, J.M., (2006). Environmental and Natural Resource Economics: A Contemporary Approach. Houghton Mifflin Company, Boston, U.S.A.Harris, R., & Sollis, R. (2003). Applied Time Series Modelliing and Forecasting. John Wiley & Sons Ltd.Henriques, I., & Sadorsky, P. (2008). Oil prices and the stock prices of alternative energy companies. Energy Economics, 30(3), 998-1010.Koomey, J. G., (2002). From my perspective: Avoiding “the Big Mistake” in forecasting technology adoption, Technological Forecasting and Social Change, 69, pp. 511-18.Laitner, J.A., S. J. DeCanio, J. G. Coomey and A. H. Sanstand, (2003). “Room for improvement: increasing the value of energy modeling for policy analysis”, Utilities Policy, 11, pp. 87-94.Milmo, C. (2010, January 2). Concern as China clamps down on rare earth exports. The Independent.Pandey, R., (2002). Energy Policy modeling: Agenda for developing countries, Energy Policy, 30, pp. 97-106.22 | P a g e THE EFFECT OF OIL PRICE ON ALTERNATIVE ENERGY GROWTH Price, L., D. Phylipsen, and E. Worrel, (2001). “Energy use and carbon dioxide emissions in the steel sector in key developing countries”, LBNL – 46987, Lawrence Berkeley National Laboratory, California.Rogelj, J., den Elzen, M., Höhne, N., Fransen, T., Fekete, H., & Winkler, H. et al. (2016). Paris Agreement climate proposals need a boost to keep warming well below 2 °C. Nature, 534(7609), 631-639. Sisodia, G., Soares, I., Banerji, S., & Van den Poel, D. (2015). The Status of Energy Price Modelling and its Relevance to Marketing in Emerging Economies. Energy Procedia, 79(1), 500-505.Urban, F., R. J. M. Benders and H. C. Moll, (2007). “Modelling energy systems for developing countries, Energy Policy”, 35, pp. 3473-82.Wang H. and Nakata T., (2009). “Analysis of the market penetration of clean coal technologies and its impacts in China's electricity sector”. Energy Policy, 37, 338-351 (2009).WilderHill, (2016). WilderHill Clean Energy Chart. http://www.wilderhill.com/largerchart.html (Accessed January 21 2007). 23 | P a g e

The Effect of Oil Price on Alternative Energy Growth

Details

Download

Copyright

We respect the copyrights and intellectual property rights of all users. All uploaded documents are either original works of the uploader or authorized works of the rightful owners.

Support