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It's a Gas, Gas, Gas
- Posted on September 23, 2010
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Unconventional natural gas is often see as the bridge fuel that will further better integration of renewable energy resources, but now it is a power price depressant that will keep renewables at a cost disadvantage for the foreseeable future.
That view was part of a wide-ranging discussion on the current economic and policy landscape that affects renewable energy. The topic was one of several discussed in the recent American Bar Association-American Council on Renewable Energy webinar. The webinar is part of a series that assesses how renewable energy's future will be affected by developments throughout the power sector, especially as they affect the wider acceptance of wind, solar, biomass and other resources.
One issue noted here previously is how the current low price of natural gas is making it difficult for renewable energy developers to sell output to utilities. Unconventional shale gas, while not as cheap as conventionally drilled natural gas, will continue to depress prices.
One significant question will be answered in the coming months as the Environmental Protection Agency determines how strictly regulated extraction practices will be.
"The question mark is not the theoretical availability. The question is going to be the political and regulatory ability of those resources to be fully exploited," said Roger Ballentine, president of Green Strategies Inc. "Even if is only partially exploited, there will be significant impact in two ways.
Ballentine said that the political environment has moved away from pricing carbon or regulating emissions, the natural gas option "is going to become a significant option for baseload capacity."
That's bad news for renewables. "I think it's clear, until the price of renewables comes down, natural gas will become the first option for carbon reduction, not renewables," he said. "In the longer term, utility scale renewable generation is going to be challenged significantly from the availability of inexpensive gas."
Hank Habicht, managing partner, SAIL Venture Partners, discussed the "bridge fuel" aspect of natural gas in the renewables landscape. "The price makes the bridge substantially longer," he said.
"One of the issues with renewable energy development is the ability to obtain favorable power purchase agreements and that gas is affecting the attractiveness of renewable and that's something everybody has to watch," he added.
But it's not an unmitigated string of positive news for unconventional gas, the speakers noted. Water use and pollution issues need to be confronted.
"I think it could be a big inhibitor, but the issues have yet to be defined . massive water use is going to require the industry find reuse strategies," Habicht noted.
The potential reserves of shale gas are so great, the effect on prices will be felt for some time, said Pat Wood, principal of Wood3 Resources. "Even if half the supply is unavailable for economic or environmental reasons, we could see sub-$6 gas for the rest of the decade," he said.
Wood added that the current landscape looks like the 1990s with historically low prices with normal seasonal variations. That impacts the hedge value renewable had when natural gas prices spiked earlier this decade.
So it looks like challenges for renewable energy remain, especially if policy support is slow to develop.
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