The economic theory of demand says that if the price of a good falls, the demand for its substitute will also fall (Alternative energy suddenly faces headwinds).
For all the support that the presidential candidates are expressing for renewable energy, alternative energies like wind and solar are facing big new challenges because of the credit freeze and the plunge in oil and natural gas prices. ...
Advocates are concerned that if the prices for oil and gas keep falling, the incentive for utilities and consumers to buy expensive renewable energy will shrink. That is what happened in the 1980s when a decade of advances for alternative energy collapsed amid falling prices for conventional fuels. ...
Wall Street analysts say most utilities and other builders can profitably choose big wind projects over gas-fired plants only when gas prices are $8 per thousand cubic feet or higher. Natural gas settled Monday at about $6.79 per thousand cubic feet, down from about $13.58 on July 3.
Pricing nonrenewable energy (e.g., cap-and-trade, carbon tax) to account for the associated negative externalities (i.e., pollution) would keep the demand for renewable energy going strong. Since we can't much afford renewable energy subsidies with a big budget deficit, I will go so far as to say that high nonrenewable prices are the only way to reach the point where we significantly shift to renewable energy.
