Even "green" energy needs lower oil price

By Gerard Wynn and Nichola Groom - Analysis

LONDON/LOS ANGELES (Reuters) - As a lengthening economic slowdown bites, the antidote for the renewable energy sector may come as a surprise -- a lower oil price.

Government subsidies and record prices for competing fossil fuels have underpinned the alternative energy boom, but now they are now starting to work against the sector.

Reliance on subsidies exposes the likes of wind and solar power to the whim of governments grappling with wider voter priorities during a global economic slowdown.

As oil and energy bills have soared consumers have become less tolerant of the extra costs passed on to them by utilities for the greener option.

"Government priorities in the last five years or so have been very clearly environment, security of supply, and way down the list has been price... all of a sudden affordability has shot to the top," said Citigroup utilities analyst Peter Atherton.

"If oil drops back to $80 then government can probably live with it (the extra cost of climate policies)."

Higher oil prices have made onshore wind competitive with natural gas, making continuing subsidies there less important, but more expensive renewable energy sectors and especially solar will be hurt by a policy pull-back.

Europe, the United States, China and India want to ramp up power production from low-carbon wind, solar and biomass to battle climate change and source more secure, domestic energy.

But goals to produce power from the sun or wind stoke energy costs because utilities pass on the higher price to consumers.

"We've seen a worsening more to do with economic weakness than anything else, it's much harder to push through or in some cases even maintain support packages that push up energy costs when consumers are under pressure," said Michael Liebreich, chairman of research firm, New Energy Finance (NEF).

"If oil comes below $100... the consumer will bear it," Liebreich said, adding that a prospective U.S. cap and trade scheme, which would impose an extra cost on carbon emissions from industry, looked less certain now than six months ago.

Global investment in clean energy from April to June was less than the same period last year, and at $33 billion barely half the last quarter of 2007, initial NEF figures show.

Most Californians won't support the state's ambitious efforts to fight global warming if they raise energy costs, a survey conducted by a pro-business group found last week.

CREDIT CRUNCH

The overall result globally is less clear climate policy.