The Inflation Reduction Act Is Accelerating The Energy Transition

• Rising fossil fuel costs are helping give renewables an edge over hydrocarbons.
• Both wind and solar depend on mined commodities, and the mining process involves the consumption of huge amounts of diesel. 
• The Inflation Reduction Act has helped accelerate the energy transition by taking some of the sting out of commodity inflation.

Commodity price inflation will help accelerate the shift from fossil fuels to alternative sources of energy, a senior Blackstone executive has told Bloomberg.

According to Rob Horn, the asset manager’s global head of sustainable resources, higher commodity prices are making renewables more competitive.

 “Zero marginal cost renewables gets an edge over hydrocarbons in these commodity prices,” Horn said during a Bloomberg event.

Wind and solar may not have marginal costs, but they do have other costs that are affected by inflation in the commodity market, including fossil fuel inflation.

For one thing, both wind and solar depend on mined commodities, and the mining process involves the consumption of huge amounts of diesel. Then there is an issue with the availability of the metals and minerals needed for the continued fast buildout of wind and solar, and this is driving costs further up.

BloombergNEF reported in the middle of last year that the cost of wind and solar had gone up by between 4 percent and 14 percent from a year earlier amid broader inflation that had pushed up the price of commodities, labor, fuel, and freight.

Later in the year, Inside Climate News reported that what was expected to be a temporary price blip—higher wind and solar costs—was turning into a trend. Luckily, the author of the story noted, the Biden administration had come to the rescue with its Inflation Reduction Act that would take care of these costs.

For all the good the IRA would do by pouring billions in subsidies into the industry, it will do nothing about diesel prices, which, according to Reuters’ market analyst John Kemp, are not going down anytime soon.

Until such time as the mining and processing of metals and minerals used in wind and solar installations become independent of fossil fuels, inflation in the latter would inevitably lead to inflation in wind turbines and solar panels.

By Irina Slav for Oilprice.com

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