When the price of oil drops, there are winners and losers. People tend to think that all types of renewable energy lose out to cheap oil, but that is not the case. One renewable source that wins is geothermal.
Countries along Latin America’s Pacific Coast and in the Caribbean have significant geothermal resources; however, these have been underexploited. It is estimated that only 4-5% of geothermal energy’s potential has been developed in the region. As this graph shows, geothermal currently accounts for only a minimal portion of the energy matrix in Latin America and the Caribbean.
This situation is changing. Many countries—with support from the IDB—are working to develop new geothermal plants, to make this technology a reality for the region. We have seen more and more activity, whether direct (exploration or project construction) or indirect (policies conducive to investment).
The drop in the price of crude oil in the last few months could boost these efforts. It’s a simple question of supply and demand.
The geothermal industry and the oil industry use all the same drilling services, which can amount to as much as 50% of a project’s total budget.
When the price per barrel is high, the oil industry reinvests part of its profits in exploring new fields, so the costs of drilling services tend to increase due to high demand. This upward pressure on prices affects geothermal projects as well.
The reverse occurs when the price per barrel drops: The oil industry focuses on exploiting its reserves instead of exploring new areas. Drilling services and equipment become more widely available, opening up an opportunity to contract them at lower prices.
In this case, a setback for the oil industry means an advantage for geothermal. In other words, this is geothermal’s time. Now it is up to governments to encourage investment, and up to business to seize this opportunity.
Click here for more information on geothermal and its inroads in the region.
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Data Like It´s Never Been Seen Before.