Wednesday, August 1, 2012

Low Gas Prices Have Not Slowed Renewable Energy But Will They In The Future?

Since 2008, times have been exceptionally good for both natural gas and renewable energy.  Both have boomed, with natural gas setting records for production in 2011, and with renewables providing more energy than nuclear power last year.

Given that since 2008 US wind has more than doubled its capacity, and solar will soon have increased its capacity 14-fold, its plain that nothing stopped their tremendous growth through 2012. Certainly not the gas boom.

A major claim by those seeking to ban gas production, however, is that cheap gas will cripple renewable energy development.  That has been false to date.  But what about the future? How much would continued low gas prices impact renewable energy's market share.

In its 2012 Annual Energy Outlook, the EIA projected for 2035 market shares of coal, natural gas and renewables in three natural gas price scenarios--its reference case, low-gas price, and high gas price.  See

EIA projects strong growth in the market share of renewables from 2010, no matter what is the price of natural gas.  Renewable's market share jumps from 10% in 2010 to 14%, 15% or 16% in the three gas price scenarios tested. Consequently, in the low-gas price scenario, renewables market share increases 40%; 50% in the reference case; and 60% if natural gas prices are high. 

So no matter the market price of gas, EIA has the market share of renewable energy increasing 40% to 60%.  Compared to the other generation technologies, renewable energy is least impacted by the price of gas, and that includes gas itself.

Under the scenarios tested by EIA, both coal and nuclear lose market share, no matter whether the price of gas is high or low, though they both lose more in the low-gas price case.  The competition between gas and coal remains intense throughout the EIA forecast period and in each case tested.

Gas's market share is completely determined by its market price, and EIA projects that it gains no market share if gas prices are high.

The EIA analysis, therefore, suggests that renewable energy alone will see substantial gains in market share, no matter the price of gas.  Moreover, I am confident that the 2012 EIA Annual Energy Outlook understates the likely growth in renewables, even though it projects a considerable amount. 

Why will renewable energy prosper even more than EIA projects?  It will do so first and foremost because cost reductions for especially solar and  wind will surprise by being bigger and earlier than expected. That will continue a trend already apparent, since the cost of wind and solar are much lower today than what many predicted 5 years ago.

Policy support for renewable energy over the next 20 years will be firm and growing, to the surprise of some, and that stronger policy support will be another reason why renewable energy growth will exceed EIA projections.

For an example of a positive renewable energy surprise, just take a look at the New Jersey solar bill that Governor Christie signed last week.  That bill alone will increase by about 3,000 megawatts solar installations in the Garden State over the next 4 years.

Just as gas is experiencing declining drilling in 2012, renewable energy development will experience up and down years over the next 20 plus years, but further significant gains in market share for renewables are certain, regardless of the price of natural gas.

1 comment:

  1. John, without going into detail about your assumptions that are somewhat faulty, read the Brattle report for Ercot. It will help you better understand the reality of economics of what is going on.