Crude supplies rose 2 million barrels per day (Mbd) on lower demand from refineries and higher domestic production that offset lower imports. Crude inventories are now ~13% above last year and significantly above the historical average.

Distillates and propane fuels are also at historically high levels, 25+% above last year. Gasoline supplies are also up, though they are below last year’s very high levels. Low demand for these fuels means that greenhouse gas emissions from petroleum are poised to fall again in 2008, though not as quickly as last year unless the recession deepens further and/or climate consciousness can help drive behavior change toward increased use of bicycles, transit, and vehicle efficiency.

These high inventories help keep oil prices at levels much below 2006-2008, ameliorating our tough economic times. But the falling oil rig count means that later in 2009-10, non-OPEC oil production will naturally fall. In what some see as a goodwill gesture for the global economy, OPEC decided last weekend to focus on full compliance of the previously agreed cuts in output rather than cutting its goalposts further.

So while oil prices may pass $50 per barrel in the months ahead, they do not appear set to rise above the 2007 average of ~$72 until economic recovery takes hold in 2010 or beyond.

We’ll see how oil markets develop, and I’ll report on the natural gas inventory numbers as they come out later in the week. Here’s to us choosing (and incentivizing through policy) the climate responsible road of lower carbon energy and efficiency going forward!

Well, one of the main obstacles to lower prices over the last four years has been rising prices of a key feedstock for conventional solar modules — polysilicon. The high polysilicon price resulted from supply not keeping up with brisk global solar demand growth. Polysilicon spot prices peaked ~$450/kg last summer, and have since fallen to a third that level, to below $150/kg. Ries projects polysilicon oversupply of almost 50% in 2009 (with supply rising to 80,000 metric tons and demand at only ~54,000 tons). He predicts even more oversupply in 2010, as supply grows ~40% and demand only ~20%. This oversupply may bring polysilicon prices down to the marginal cost of polysilicon production ~$60/kg, an 87% drop from the $450/kg last summer!

As I mentioned before, some module producers are already lowering their prices significantly. Yingli Energy of China lowered its Average Selling Price (ASP) for modules by 21% in the 4th quarter of 2008 to $3.19 from $4.04 per watt. They apparently have a ways to go to stay competitive in today’s deflationary environment. But only a few producers like First Solar seem ready for low prices below $2.50 per watt (their thin-film manufacturing costs last quarter were ~$1.16 per watt), so there will probably be a period of shakeout and consolidation across the industry as prices fall. First Solar aims to lower its price below $1.50 per watt by 2011 through a 30% drop in manufacturing costs to ~80 cents per watt.

If such price drops do occur and oil prices rise at least to the marginal cost of new non-OPEC production ~$70 per barrel, the 2010s may be the decade that solar and wind power begin to dominate fossil energy as the source of new energy.

The rise of renewables is an exciting time for the climate, at an urgent time for us to make progress. The compromise Stimulus Bill and other policy efforts are crucial to help renewable energy and efficiency innovators have enough revenue to keep developing toward their potential in the years ahead.

Onwards in the Sustainable Energy Transition!

The stability of solar prices remains impressive to me since fossil fuel prices have collapsed by more than 60%. This occurs thanks to many of today’s modules sales set up via long-term contracts. A number of solar manufacturers at the margins have reduced prices as much as 30%, so there are bargains to be had even if most prices are resilient.

Bottom line: The downward movement in prices is helping to increase the competitiveness of solar versus other energy sources. It is probably good for the industry that module prices are falling slowly, but price declines will need to accelerate in the years ahead if we are to achieve grid parity in sunny markets by the end of current subsidies in 2016.

In Europe, the January retail price of solar modules fell six cents to a record low of 4.61 euros per watt peak. This was a couple euro cents below the 2004 trough. US solar prices only fell one cent to remain at $4.84 per watt, 11% above 2004 lows. The strength of the euro currency is a major factor in the larger price drop in Europe. In fact, if US prices stayed constant, an equivalent price in Europe using today’s exchange rate of ~$1.35 per euro would translate into a dramatic fall (20+%) in solar’s price below 4 euros per watt. An end 2009 price level below 4 euros per watt seems probable as polysilicon shortages are relieved by higher supplies and lower demand.

For those of us in the US, prices may drop much slower if the dollar remains weak. I would still guess that prices will drop close to the 2004 record low price ~$4.35 per watt by the beginning of 2010. They may even drop further as I discussed last month.

When the price is relayed as cents per kWh, global solar fell .13 cents (.6%) to a January price of 21.19 cents per kWh. A 10+% drop in solar prices during the current year, as I believe is probable, would send prices below 20 cents per kWh toward grid parity in more expensive markets in Germany, Japan, Hawaii, and elsewhere.

Supply catching up with demand can help the solar industry get closer to its goal of grid parity and relevance across most markets. But Obama & Co. and other government actors in the US and abroad who want to support continued solar innovation will need to monitor solar industry profits. We may need more government incentives to help ensure that this promising technology doesn’t lose all its recent momentum in the current economic downturn. Green stimulus packages with solar provisions can help solar become a solid player in the energy sector as wind has emerged in recent years (the second largest new source of electricity by capacity).

SET aims to give you regular updates throughout the year ahead as the crucial solar industry and other sustainable energy sources develop to meet the unique challenges of 2009. Let’s turn the climate and economic crises of today into jobs and security opportunities for tomorrow.