The lower the price of natural gas, the less interest utilities have in renewables.
With the boom and oversupply of natural gas, thanks to widespread fracking, prices are at a 2- year low, prompting concern about how it will affect renewable energy.
Utilities are able to buy cheap natural gas in long term contracts, which means they’re less likely to embark on new utility-scale renewable energy projects.
While this does pose a near-term threat to the rate of utility-scale renewable energy development, that won’t be true in a few years, argues Dan Self of the Rocky Mountain Institute.
A few years from now, natural gas prices will rise from a combination of increased regulation, long-term underperformance of production wells, and higher-priced drilling leases. And as it’s increasingly used to replace coal, to run vehicles and for export, prices will rise, Self explains.
And unsubsidized utility-scale renewables will be able to compete on price within a few year. Wind is already competitive in areas with strong wind.
In the short run, many project developers have already received approval for the 30% Treasury grant which expired at the end of 2011. They signed power purchase agreements with utilities, locking them into attractive prices before the decline in natural gas prices.
He also points to the projected boom in rooftop solar PV, which is less affected by low natural gas prices. While utility-scale renewable generation must compete against wholesale prices, rooftop solar competes with retail electricity rates.
Thus, rooftop PV could bridge the gap in new utility-scale projects for the next couple of years.
“Long term, the relentless downward cost curve of both utility-scale wind and solar PV – as well as natural gas and coal’s environmental and market dynamic factors – will inevitably lead to accelerated build-out of renewable power,” he says.
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