The End of Cheap Energy

Oil price behaviour in the past
Fig. 1 shows the development of crude oil prices between 1960 and 2005. It is characterised by considerable fluctuations with an underlying evident upward trend. This trend is reflected in the plotted average-value curve. “It cannot be what must not be” is an approach most of the influential forces seem to have agreed upon for quite some time. High energy prices are not exactly a stimulus for the economy. That is why this possibility had to be eliminated right from the start. It is easy to see that reality developed differently to this wishful thinking. It would have been less hard on all of us if economy and society had been seriously prepared for high energy prices.

Oil prices will still dominate the level of prices for a long time
Today, crude oil is the main energy source of a worldwide hunger for energy. According to studies of the International Energy Agency [IEA 2001], it is crude oil that will dominant energy prices for a long time to come.

Determining factors for oil prices
Naturally, oil prices may decline within the next year. It is one characteristic of such markets that are being ruled by speculations to be almost unpredictable. One more reason to reduce dependency a little?
But let us discuss the development once again in relation to the main reasons causing presently high energy prices:

• Oil production capacities in Europe and Northern America are decreasing.
  Fewer capacities – this trend will itensify in the future.
• Yukos ( Russia), Acts of Sabotage and Terror in Iraq
  Is it just a “current problem”? Who is making statements concerning future security?
• Increasing Energy Demand in China
  And China’s increased demand for energy is only the beginning. This is the main middle- and long-term driving force.
• 4 Hurricanes within 6 Weeks ( in 2004)
  For the time being just a current problem, but henceforth a major one due to climatic changes; that has been proven in 2005 again.
• OPEC Capacity Limits
  a medium-term solution seems possible, but in the long run capacity limits exist everywhere, cp. „peak oil“.

Fig. 1: Oil price development in the past- and in the future

Conclusion for the Future Level of Energy Prices (cp. Fig.1)
We dare to estimate an extrapolation of medium energy prices. No forecast, mind you, but a well-founded extrapolation based on the previous given analysis. There will not be an exponential rise in energy prices – substitution potentials are preventing this development. But future medium energy prices will hardly be lower then today’s daily prices in the relevant period of time. That is the period, in which new or modernised buildings require a certain amount of heat energy.
Interestingly enough, economic experts have agreed upon this conclusion again. It was known that a rise in prices had to take place at some stage, but the exact date was hardly predictable. Current prices, slightly exceeding the trend, may by all means drop again – a possibility allready taken into account in the trendline.

What kind of energy prices are to be expected? With a medium oil price level of about 55 Cent per litre, heat prices will derive at 6,1 Cent per kWh, using an annual combustion efficiency of 90%. Adding the expenses for auxiliary power (appr. 0,3 Cent/kWh) and the variable share of system costs, medium future heat prices are assumed to be about 8 Cent/kWh. Thereby not yet including expenses for CO₂ mitigation.

What Can be Done?
Prospects would not be very good, if we continued to be dependant on energy imports of constant quantities on the world market. Fortunately, we are not dependant any longer: native energy substitution is available – on a competitive basis even compared to today’s energy prices (biomass energy, wind- and water power for heat pumps). Unfortunately, these energy sources are available on a limited scale. But that is not necessarily a problem as it is possible to reduce the energy demand by a factor 4 (and even more) with improved energy efficiency.Against the background of future energy prices this is economically advantageous. The Passive House is one example of a highly energy efficient solution. Compared to conventional buildings, Passive Houses demand slightly higher investment costs. It is thus imortant to have an elaborate financing. Working groups no. III, IV and XIV at the Conference on Passive Houses will deal with the question of ”Promoting Passive Houses”.

Literature
[IEA 2001] International Energie Agency: World Energy Outlook; IEA-Press, 1. edition, Oct. 2001

(Author: Dr. Wolfgang Feist)

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Time schedule of the 10th International Conference on Passive Houses in Hannover

2005 Dezember 1st: Deadline for abstracts
2006 February 1st:    Notification on acceptance of abstracts
2006 March 1st:         Registration period for reduced fee ends
2006 March 15th:       Deadline for the written contributions of the preceedings

2006 May 19th and 20th   10. Conference on Passive Houses HCC Hannover with Exhibition on Passive House Components and manufacturers session

May 21st field trip to the most interesting Passive House projects and construction sites incl. refurbishment in the region near Hannover.

(updated:2005-10-14   © Passive House Institute PHI; this page might be reprinted if unchanged)

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Passive House Institute, Dr. Wolfgang Feist. mail@passiv.de.