Renewable Energy: Vanquisher or Hapless Victim of High Natural Gas - - PowerPoint PPT Presentation

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Renewable Energy: Vanquisher or Hapless Victim of High Natural Gas - - PowerPoint PPT Presentation

Dec 25, 2023 10 likes •223 views

Renewable Energy: Vanquisher or Hapless Victim of High Natural Gas Prices? Mark Bolinger (MABolinger@lbl.gov) Lawrence Berkeley National Laboratory http://eetd.lbl.gov/ea/EMS/ NARUC 2004 Winter Committee Meetings Committee on Energy Resources

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Environmental Energy Technologies Division • Energy Analysis Department

Renewable Energy:

Vanquisher or Hapless Victim

  • f High Natural Gas Prices?

Mark Bolinger (MABolinger@lbl.gov) Lawrence Berkeley National Laboratory http://eetd.lbl.gov/ea/EMS/

NARUC 2004 Winter Committee Meetings Committee on Energy Resources and the Environment March 9, 2004

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Environmental Energy Technologies Division • Energy Analysis Department

Topics

1) Uncertainty over future natural gas prices 2) The value of long-term fixed-price contracts for renewable energy 3) What impact do renewables have on gas prices? 4) What impact do high gas prices have on renewables?

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Environmental Energy Technologies Division • Energy Analysis Department

Natural Gas Prices Are High and Volatile

1 2 3 4 5 6 7 8 9 10 Apr-90 Apr-91 Apr-92 Apr-93 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Mar-07 Mar-08 Mar-09 Mar-10 $/MMBtu (nominal) 1 2 3 4 5 6 7 8 9 10 $/MMBtu (nominal)

Source: NYMEX

NYMEX natural gas futures strip on 03/04/04 Daily price history of 1st-nearby NYMEX natural gas futures contract

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Environmental Energy Technologies Division • Energy Analysis Department

NPC Gas Price Forecast (Henry Hub)

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Environmental Energy Technologies Division • Energy Analysis Department

EIA, NYMEX Imply “Balanced Future”

3 4 5 6 7 8 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 $/MMBtu ($2002 at Henry Hub) AEO 2004 NYMEX REACTIVE PATH BALANCED FUTURE

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Environmental Energy Technologies Division • Energy Analysis Department

…But Be Wary of Price Forecasts…

Historical AEO Wellhead Gas Price Forecasts vs. Actual Wellhead Price

1 2 3 4 5 6 7 8 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015

Wellhead Price (Nominal $/MCF)

85 86 87 91 90 89 92 93 94 95 97 98 99 96 00 01 02 03 Source: EIA

Actual Wellhead Price

04

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Environmental Energy Technologies Division • Energy Analysis Department

Topics

1) Uncertainty over future natural gas prices 2) The value of long-term fixed-price contracts for renewable energy 3) What impact do renewables have on gas prices? 4) What impact do high gas prices have on renewables?

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Environmental Energy Technologies Division • Energy Analysis Department

LBNL’s Accounting for Fuel Price Risk…

Best Practice:

  • Cost of renewables should be compared to cost of gas-

fired generation based on a guaranteed fuel price

Current Practice:

  • Cost of renewables is often compared to cost of gas-fired

generation based on uncertain fuel price forecasts

Question: How to compare the levelized cost of fixed- price renewable to variable-price gas-fired generation? How do guaranteed forward gas prices compare to uncertain gas price forecasts??

to to

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Environmental Energy Technologies Division • Energy Analysis Department

Forward Prices Exceed Price Forecasts

2.7 2.9 3.1 3.3 3.5 3.7 3.9 4.1 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 Natural Gas Price ($/MMBtu)

Implied Forward Swap Curve (Enron) EIA Forecast (AEO 2001)

November 2000

Source: Enron and EIA

2.2 2.7 3.2 3.7 4.2 4.7 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Natural Gas Price ($/MMBtu)

Implied Forward Swap Curve (Enron) EIA Forecast (AEO 2002)

November 2001

Source: Enron and EIA

October 2003

3.8 4.0 4.2 4.4 4.6 4.8 5.0 5.2 2004 2005 2006 2007 2008 2009 Natural Gas Price ($/MMBtu) NYMEX Futures Price (Annual Average) EIA Forecast (AEO 2004)

Source: NYMEX and EIA

3.0 3.2 3.4 3.6 3.8 4.0 2003 2004 2005 2006 2007 2008 Natural Gas Price ($/MMBtu)

NYMEX Futures Price (Annual Average) EIA Forecast (AEO 2003)

Source: NYMEX and EIA

November 2002

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Environmental Energy Technologies Division • Energy Analysis Department

Levelized Premiums Average $0.7/MMBtu

0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 0.8 0.9 1.0 2-Year 5-Year 6-Year 7-Year 10-Year Contract Term Implicit Premium ($/MMBtu) 0.0 0.1 0.2 0.3 0.4 0.5 0.6 0.7 Implicit Premium (¢/kWh)

Enron - AEO 2001 (November 2000) Enron - AEO 2002 (November 2001) NYMEX Futures - AEO 2003 (November 2002) Williams Physical Supply - AEO 2003 (November 2002) NYMEX Futures - AEO 2004 (October 2003) Average

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Environmental Energy Technologies Division • Energy Analysis Department

Implications

Whether these premiums represent “hedge value”

  • r something else (e.g., biased forecasts) is

debatable, but does not change the fundamental implication of this work: Use forward prices, not price forecasts, when comparing the levelized costs of gas-fired and renewable generation

For more information: http://eetd.lbl.gov/ea/EMS/reports/53587.pdf

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Environmental Energy Technologies Division • Energy Analysis Department

Topics

1) Uncertainty over future natural gas prices 2) The value of long-term fixed-price contracts for renewable energy 3) What impact do renewables have on gas prices? 4) What impact do high gas prices have on renewables?

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Environmental Energy Technologies Division • Energy Analysis Department

Renewables Displace Natural Gas

Theory: As renewables displace gas-fired generation,

demand for natural gas declines, and the price of gas falls

Average inverse elasticities mostly range from ~1 to ~3: for each 1% drop in demand, gas prices fall 1%-3%

Reduction in US Gas Wellhead Average Implicit Date of Model National RPS Gas Consumption Price Reduction Inverse Supply Author Study Used Modeled

Quads (%) in 2020 $/MMBtu (%) in 2020

Elasticity EIA 1998 NEMS 10% by 2010 1.1 (3.4%) 0.34 (12.9%) 3.6 EIA 2000 NEMS 7.5% by 2010 0.4 (1.3%) 0.19 (6.6%) 3.2 EIA 2001 NEMS 10% by 2020 1.5 (4.0%) 0.27 (8.4%) 2.2 EIA 2001 NEMS 20% by 2020 3.9 (10.8%) 0.56 (17.4%) 1.5 EIA 2002 NEMS 10% by 2020 0.7 (2.1%) 0.12 (3.7%) 1.3 EIA 2002 NEMS 20% by 2020 1.3 (3.8%) 0.22 (6.7%) 1.3 EIA 2003 NEMS 10% by 2020 0.5 (1.4%) 0.00 (+0.05%) 0.1 UCS 2001 NEMS 20% by 2020, EE 10.5 (29.7%) 1.58 (50.8%) 1.7 UCS 2002 NEMS 10% by 2020 0.7 (2.1%) 0.05 (1.5%) 0.9 ACEEE 2003 EEA 6.3% by 2008, EE 1.4 (5.4%) 0.74 (22.1%) 11.5 NPC 2003 EEA

  • ~4
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Environmental Energy Technologies Division • Energy Analysis Department

Simplified Method – Inputs

“Model” results, without having to run the model!!

  • Gas Displacement (1 MWh RE = 0.6 MWh Gas-fired)
  • Heat Rate of Displaced Gas-Fired (7,500 Btu/kWh)
  • US Gas Consumption Forecast (from AEO)
  • Inverse Elasticity of Supply (range from +1 to +3)
  • US Gas Wellhead Price Forecast (from AEO)
  • Wellhead to Delivered Prices (1:1)
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Environmental Energy Technologies Division • Energy Analysis Department

Simplified Method – Results

Aggregate Impact of Current State RPS on Gas Prices

  • 0.16
  • 0.14
  • 0.12
  • 0.10
  • 0.08
  • 0.06
  • 0.04
  • 0.02

0.00 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Change in Gas Price, All Sectors (2002 $/MMBtu)

Inverse Supply Elasticity = 1.0 Inverse Supply Elasticity = 2.0 Inverse Supply Elasticity = 3.0 $1.6 Billion ($20/MWh) US Savings in 2025 (2002$): $3.3 Billion ($39/MWh) $4.9 Billion ($59/MWh)

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Environmental Energy Technologies Division • Energy Analysis Department

Topics

1) Uncertainty over future natural gas prices 2) The value of long-term fixed-price contracts for renewable energy 3) What impact do renewables have on gas prices? 4) What impact do high gas prices have on renewables?

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Environmental Energy Technologies Division • Energy Analysis Department

With Gas Prices this High…

1 2 3 4 5 6 7 8 9 10 Apr-90 Apr-91 Apr-92 Apr-93 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Mar-07 Mar-08 Mar-09 Mar-10 $/MMBtu (nominal) 1 2 3 4 5 6 7 8 9 10 $/MMBtu (nominal)

Source: NYMEX

NYMEX natural gas futures strip on 03/04/04 Daily price history of 1st-nearby NYMEX natural gas futures contract

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Environmental Energy Technologies Division • Energy Analysis Department

…Renewables are Cost-Competitive

Levelized Cost of New Generation Over Range of Gas Prices

10 20 30 40 50 60 70 80 1 2 3 4 5 6 7 8 Natural Gas Price ($/MMBtu)

Levelized Cost of Energy ($/MWh)

Source: AEO 2004

NYMEX Futures Strip Wind (without PTC) Wind (with PTC) Natural Gas Advanced Combined Cycle

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Environmental Energy Technologies Division • Energy Analysis Department

Yet in High Gas Price Scenario, Coal Wins(!)

Oil and Gas "Slow Tech Progress" Case Relative to Reference Case

  • 20
  • 15
  • 10
  • 5

5 10 15 20 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025

Relative Cumulative Capacity (GW)

Coal-Fired Capacity Renewables Capacity Gas-Fired Capacity

Source: EIA (AEO 2004)

Gas prices $0.20/MMBtu higher (on average) in this scenario

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Environmental Energy Technologies Division • Energy Analysis Department

Reason: Low Capacity Value of Wind

Two implications of low capacity value:

1) Peak load growth requires resources other than wind

  • In a high gas price environment, likely to be coal rather

than gas

2) Wind competes as a “fuel saver” against the marginal resource

  • In high gas price environment, coal replaces gas as the

marginal resource, and wind competes against coal

  • Coal fuel savings not as valuable as gas fuel savings

Model ignores possibility of future carbon regulations…

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Environmental Energy Technologies Division • Energy Analysis Department

Conclusions

1) Gas prices are high, volatile, unpredictable 2) Cost of renewables is steady, predictable

  • Achieving similar gas price stability has cost ~$0.7/MMBtu

3) Renewables reduce gas consumption and prices

  • Modeling studies imply that a 1% drop in gas demand

leads to a 1%-3% drop in gas prices BUT…

4) Models also suggest that higher gas prices lead to more coal, not more renewables