Tuesday, October 16, 2012

Gas Generation To Go Down 10% But Wind Up 13%: How Is Gas Killing Renewables?

New wind construction faces one major threat in 2013, and its not gas.  Gas-fired electricity is projected to decline 10% in 2013, as a rising gas price causes gas to lose market share to coal-fired generation. Instead the one threat endangering wind projects in 2013 is the expiration of the Production Tax Credit (PTC) at the end of 2012.

Despite the battle over the wind PTC, with Governor Romney favoring its expiration and President Obama favoring its renewal, actual electricity production by America's wind farms is projected by EIA to be 13% higher in 2013 than in 2012, reaching 420 million kilowatt-hours per day.  That will be enough electricity to supply about 15.5 million homes.  www.eia.gov/forecasts/steo/tables/?tableNumber22=#.

The increased production in 2013 will mostly result from a full year of operations of the 10,000 megawatts of new wind farms being completed in 2012. In addition, some new wind will be built in 2013, even if the PTC is not renewed, but estimates put 2013 without the PTC at around 2,000 megawatts, a new build number that would be the lowest in many years.

If wind production increases by 13% in 2013 and gas declines by 10%, as the EIA projects, that will be yet one more fact demonstrating that gas is not killing renewable energy.  After all, wind will increase, even as gas generation retreats. And the slow down in new wind construction likely in 2013 would be caused by the expiration or late renewal of the PTC.

Even with 2013 right around the corner, the recent EIA projections for 2013 production from coal, gas, and wind may still prove wrong.  But the forecast is built on the established facts that coal and gas compete intensely for market share and that already constructed wind farms run no matter what are the prices of coal or gas.

Wind farms run no matter what the prices of coal or gas are, because the zero-fuel cost of wind generation and wind's other operational cost advantages means that wind generation has the lowest production costs of all generation sources, with the possible exception of solar. Wind generation will produce power at a cost almost always below the wholesale electricity market price and will be profitable in nearly all hours of the year.  The same cannot be said of gas and coal plants.

Coal and gas power plants have much higher production or operating costs than wind and most other renewable generation sources.  They will run or not, depending primarily on the price of their fuel and the price of electricity.

The fact that wind farms low production costs mean that they run once built is why wind's generation market share will tend not to decline or be as volatile as coal or gas.  From year-to-year the same wind farms will operate at approximately the same production levels.  But gas and coal plants actual production can vary substantially year-to-year, depending on the fuel prices of each, and so the generation market shares of both will follow to some extent price changes in natural gas and coal.

Next year's rising wind and solar generation and falling gas generation, all in the same year, will be one more demonstration that attacks on gas for killing renewable energy are factually challenged!

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