You’re probably all familiar the expression ‘peak oil’. It’s a shorthand way of describing the moment that we will use up half the oil found in the ground and under the seas. No one can say just when it might happen. Most of the powers that be and the oil majors would have us believe that peak oil is something like 30 years away, but a small and vociferous minority think it’s going to happen much sooner. Some even think we are already at or even past the peak. Meanwhile, politicians make pompous speeches about solving the problems of climate change, and then proceed to do very little about it.
No one will jump up and down and say, “This is it, this is the point where we’ve used up more than half the oil,” because no one will know. But there is one major indicator – price – which suggests that peak oil is much closer than we think. Through most of the 1990s, the oil price wobbled around the $20 a barrel mark, but it started climbing at the beginning of 2002 and hasn’t really stopped since, standing today at $120 per barrel.* That’s a five-fold increase in six years. Conventionally, the major oil producers would have increased output to meet the rising demand, but this doesn’t appear to be happening: oil output has been sticky at around 80 million barrels a day for some time.
So let’s suppose that the peak oil moment is close at hand. Oil will still be available for years after peak oil has been and gone, but it will be more expensive. Could we anticipate another five-fold increase in the next ten years?
What effect might that have on domestic energy prices in, say, 2018? Heating oil would increase from 45p per litre to well over £2 per litre – equivalent to 25p per kWh – and mains gas would possibly increase by a similar amount, up from today’s 3p per kWh to 15p per kWh. Electricity, now around 10p per kWh, would increase but probably not by as much as five times. It would still be more expensive than oil, but would probably be around 30p or 40p per kWh. Nuclear and renewable power streams would, by now, be relatively cheap. Mains gas is likely to remain the cheapest fuel, but properties off the gas grid will move towards solutions such as solar power and heat pumps.
In this scenario, hot-water solar panels would become a common sight. If the cost of providing hot water to a household rises from £200 to £1,000 per annum, £2,500 spent on putting up solar panels would pay for itself in just five or six years.
Use of ground-source and air-source heat pumps, particularly off the mains grid, would expand. Whereas you can argue that heat pumps are now only marginally cheaper than oil-fired boilers (and more expensive to install), a five-fold rise in oil prices would tilt the balance heavily in favour of the electric heat pump. Photovoltaics (PV) would still barely make economic sense. At the moment, the financial return is around 1% per annum — for every £10,000 spent on erecting PV panels on your roof, you will generate no more than £100 of electricity. Quadrupling the value of that electricity still only increases the return to 4% and the kit will only last around 25 years. However, most commentators expect to see installation costs fall and it could well be that you might get 12m2 of PV arrays for around £2,000 by 2018 –– which would begin to make the £400-a-year return look very attractive.
So, if you plan on building a new house soon, and are wondering whether it’s worth spending extra on energy-efficiency measures and renewable power plant, try multiplying your current energy bills by five and seeing what difference that makes.