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# III. CONCLUSIONS

# Factors Influencing the Effect of Lower **Oil** Prices on RETs

64. The analyses presented in Chapter 2 indicate that, in general and with the discount rate used in Bank studies, the economic sensitivity of renewable energy technologies to lower international oil prices can be a function of scale and location. Though lower oil prices reduce the economic viability of renewable energy technologies, high transpor costs and diseconomies of small scale conventional alternatives make renewable technologies the most economic choice in some locations.

65.

65. Scale: Fuel costs generally compr:3e a larger percentage of total annualized system costs for large-scale petroleum-based conventional energy technologies than for small-scale applications. Hence, a marked decrease in fuel oil and diesel fuel prices reduces larg- scale conventional energy costs significantly, while barely changing the total costs of smaller conventional energy technologies. Because of this, renewable energy technologies that compete directly in the modern sector as large-scale petroleum substitutes are most adversely affected by falling oil prices.

66. A concrete illustration of this general result can be seen in Table 1 and Figure 8. In Table 1, a 50% drop in fuel oil price (from 20 e/l to 10 e/l) would reduce the cost of electricity generated by a 10 MW diesel by over 30%. In Figure 8, a 67% drop in diesel fuel price (from 45 ¢/1 to 15 e/l) would reduce the cost of water, pumped by a 2.5 kW diesel for a village of 500, by less than 10%.

67. Location: RETs that are large-scale petroleum substitutes tend to be located close to urban areas, while the smaller, stand-alone technologies are often used in rural and remote applications. The economic prices of petroleum fuels generally increase with distance from major urban areas because of transportation and distribution costs. Likewise, the economic prices of biomass fucls generally decrease with distance from major urban areas due to increasing availability in rural areas. For these reasons, the economic viability of rural and remote RET applications is affected less by falling international oil prices than large-scale, petroleum substitution RETs located near urban areas.

68.

68. Two additional attributes of location serve to insulate the economics of small-scale, rural RET applications from the fail in oil prices. First, as shown in Figures 1 and 2, the regulated financial prices of diesel fuel and fuel oil have not been reduced nearly as much as the drop in international FOB oil product prices. It has been noted that retail prices of small quantity conventional fuel purchases is often uncontrolled in remote iegions. Hence, operators of smallscale rural energy applications can face financial fuel prices well above regulated prices and far above economic fuel costs. Second, a reliable supply of conventional fuels is much more common in and near cities than in remote regions. Even though the economic analysis may show a particular RET to be slightly more expensive than a conventional power source, an intermittent conventional fuel supply could well be enough to make the renewable application the appropriate choice.