By Thomas Kostigen
The price of oil has dropped so much in recent weeks that traders are essentially paying people to take it off their hands: On April 20th, oil dipped below zero dollars per barrel from a 52-week range high of more than $65.
Negative oil prices translate into super low energy prices at the pump and across industries. For alternative energy sources such as wind, solar, and the like, this means a change in modus operandi and sales tactics. To date, alternative energy producers have been scrambling to lower their prices through increased efficiencies and subsidies. And it’s worked: hydropower, wind, and solar energy are nearly as cheap per kilowatt hour as coal, historically the cheapest energy source oil the planet and widely used to create electricity via power plants. But the recent drop in the price of oil might jeopardize progress. Here’s why: with low oil price thresholds to meet or beat, it may be near impossible for alternative energy suppliers to compete with today’s oil prices.
Oil of course, gets refined into multiple products such as gasoline and jet fuels. That crimps what is hoped to be the ultimate savior of the alternative energy market: transportation. Already automobile manufacturers have pulled back on their investments in electric vehicle production. Unless consumers demand cleaner energy vehicles and exhibit their willingness to pay more for greener vehicles, the EV market is certain to suffer. That will have pass along demand issues as other markets and manufacturers are sure to follow.
This is where, when, and how value and values-based principles collide. Numerous studies report that consumers are willing to pay more for sustainable goods. Investors are according to different studies willing to receive lower rates of return in sustainable companies. Studies, surveys, and polls however, are different from reality and actual investments and purchasing habits.
Given the massive spate of unemployment and the contraction of the global economy, investors beliefs and values will be put to the test over the coming months and perhaps years. Moreover, as many businesses and employees struggle in this recession, consumer prices, too, will be tested. (If you are short on cash and/or capital, are you really willing to pay more at the checkout counter and/or receive lower ROIs?)
To be sure, a financial advisor can help guide investors to companies that do well and do good. But it will be up to investors whether to choose this route. Meanwhile alternative energy providers will have to (and should already) double down on their clean energy benefits and better tout their climate friendliness to investors and consumers alike.
The global pandemic has brought along with it numerous anomalies, energy prices being just one of them. So as many people take this time in lockdown and social distancing for self-reflection, it’s also a good time to decide what type of investor to be: value or values-based? Whether through investments or purchases, it’s more important now than ever to make the right choice for health, wealth, and the planet. And by the looks of it, it may not be the cheapest option that matters most. But it may just be the right one.
Thomas Kostigen is a contributing writer to MyPerfectFinancialAdvisor, the premier matchmaker between investors and advisors. Thomas is a best-selling author and longtime journalist who writes about environmental, social, and governance issues.