Are Natural Gas and Renewable Energy competitors? Or complementers?

Natural gas proponents have a tendency to bash solar and wind generated electricity. Both solar and wind are intermittent sources of electricity they argue. Short term weather patterns as well as seasonal variations in temperature and precipitation can create havoc in predicting output from either solar or wind farms.  And neither solution is good at handling peak demand, those times when utilities need extra short term capacity to meet demand.

1 And low natural gas prices over the past few years have accelerated the use of natural gas for new utility capacity.  Nearly 90% of new electricity capacity in the western United States is planned to be natural gas fired electricity generation in the next decade, in spite of this area being one of the best areas in the world for both solar and wind energy.

With the big boost in U.S. natural-gas output from new horizontal fracturing technology, some experts concluded that solar and wind energy would be battered by this cleaner, less expensive fuel.  Indeed both markets have experienced a slowdown at the utility scale level of development.

I believe this is a reflection of the near term economy and the fluctuating uncertainty around Federal and State tax credits and benefits for solar and wind. For the long term, we predict gas and renewables will coexist in more and more utilities’ portfolios.The recent data shows that both are growing.  Natural-gas electricity generation rose 34% from 2009 to 2012, starting from a much bigger base than renewables. Wind generation rose 92% in the same period and solar generation about 4X, according to the Wall Street Journal.

Natural gas plants are compact in size, can be sited in and around large cities, can be quickly permitted, and can be easily financed. Output can be easily turned up or down to meet demand. However, building these facilities means the utilities are now at risk for long term natural gas prices. Yes the prices are low today. But what will the price be in one year? Five? Ten? Regulators know consumers and businesses are notoriously aware of price increases for electricity, so it can be hard for utilities to recover increased costs at the time they incur.

Over the longer term, volatile gas prices and new environmental controls add up to a big risk for utilities.  How to hedge this risk? Utilities can resort to price hedging their fuel cost, just as airlines may hedge jet fuel prices. But that may not stop a steady rise in fuel costs over time.

A different hedge is to build a balanced portfolio of electricity capacity that includes wind farms and solar projects. Almost all of the costs for these renewables are upfront and predictable. The future costs of electricity are much more certain than for natural gas fired plants. This alternative view of hedging makes solid business sense for utilities, especially now that the solar and wind industries have the capacity to provide meaningful gigawatts of electricity at competitive costs to natural gas over the long term.

Competitors or complementers? Expect natural gas and renewables to coexist in the utility industry for the next 20 years.


Obama on climate change: big talk, not much action

The President’s climate change program offers nothing new to impact carbon emissions.

On June 25, President Obama announced a goal of curbing greenhouse-gas emissions 17% from 2005 levels by 2020.  The key program to accomplish this is “…establish carbon pollution standards for both existing and new power plants.”

This would be the first-ever federal effort to regulate greenhouse-gas emissions from electricity generating power plants, the source of about one-third of such carbon emissions in the U.S.  The main strategy is to reduce the use of coal, in favor of cleaner, less carbon emitting fuels, mainly natural gas.

Obama is only a decade behind!  In the past decade (see charts), the electric utility industry has already reduced its coal usage by over 1/3, from 51% of total electricity generation in the U.S. to 37% in 2012, as reported by the Nuclear Energy Institute .

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Natural gas has taken up all of the slack, because natural gas fired plants are physically smaller, can be situated near customers in large cities, have much shorter regulatory approval cycles, and because horizontal deep fracking drilling has made natural gas plentiful and cost effective, now and in the future for North America. Over 90% of the new capacity for electricity currently in the approval process in the U.S.  is for natural gas fired plants. Natural gas’s portion of total electricity will continue to rise, with or without regulation by the federal government.

President Obama’s plan includes other measures meant to reduce emissions, including $250 million in federal loan guarantees for cleaner fossil-fuel energy projects; new fuel-economy standards for heavy trucks; and greater cooperation between the U.S. and major economies including China, India and Brazil. These proposals are either too small to have a meaningful impact, or they lack any specific proposals that could achieve meaningful results. Big talk, but little results will come.

Mr. Obama’s proposals don’t require congressional approval. One can expect legal and congressional challenges to regulating carbon emissions from power plants. But the electric utility industry will continue its progress away from coal, with or without those regulations.



Superstorm Sandy’s urgent message: “Backup electricity”

The images and stories from Superstorm Sandy are too reminiscent of Katrina. Flooded communities. A fractured infrastructure that cannot help thousands of citizens for days. The storm passes but local, state, and FEMA responses, while well intentioned, don’t stop shortages of electricity, gasoline, food, and transportation.

The key lesson is that all of the needed emergency infrastructure runs on electricity. And we can’t depend on the grid in an emergency.  My three point plan for off-grid electricity won’t eliminate hardships, but it will speed the recovery process by days.

Can We Get More Gasoline for Storm Victims?First, require cell towers to have power backup. It can be solar, hydrogen cells, or fuel based. Since cell phones provide the most critical communication system, lets require providers to ensure availability and tax the cellular users to pay for it.

Second, require gasoline retailers to have generator backup. Even with fuel onsite, if they dont have electricity, they can’t serve the public. Too much gasoline is sitting in tanks and not helping the public.

Third, use FEMA dollars to equip local public facilities, especially schools and shelters, with backup generators. The fuel source may be tailored to local requirements. In an emergency, people need a safe, warm place to stay immediately, when their home is damaged.

Lets not wait for another catastrophe to upgrade our infrastructure. We don’t know where and when it will happen, but there is no reason to be unprepared. Off grid electricity is the key strategy for minimizing personal hardships and saving lives.