Economics of Alternative Energy
The curious behavior of US oil (red) and WilderHill Clean Energy (blue) between January and June 2008
Conventional wisdom says that as the price of oil goes up, alternative energy becomes more economical and the value of alternative energy companies should also rise. With oil prices hitting an astonishing low in recent weeks, does this mean that alternative energy stocks will also fall? Not necessarily. Tim Kailing conducted an interesting analysis of the correlation between oil prices and alternative energy stock prices during the summer while oil prices were at an all time high. Surprisingly there was little correlation in the short run. In fact there were days when alternative energy stock movements were better explained by overall market movements than by movements in oil prices. However Kailing concludes:
I also believe this is a case where investing wisely as an individual will also yield a societal good: the earlier we invest capital in alternative energy the sooner we will help our economy and our society prepare for the epochal challenge of life on the down slope of Hubbert’s Peak. This world will be one where energy supply will be crucially dependent on innovation, rather than being primarily dependent on how many holes we poke in the ground and how much ground we have access to in places like the Middle East. And this world will be one where energy conservation and efficiency are not private moral goods, as Dick Cheney would have it (read, something for bleeding-heart suckers to worry about), but are, instead, absolutely essential to economic growth.
Read the full article at: ellipticalresearch.com
-Ben Connor Barrie
