rp_0208_1.html
Studies Reveal Vulnerability of Gas, Show Clean Energy Can Protect Against Price Spikes
Increased dependence on natural gas-fired power plants poses economic risks that wind power could help prevent. That's the message of two recently released energy studies which together make the case that investing in cost-effective conservation and diversifying California 's energy mix with renewable energy sources will help keep power prices stable. Reduced dependence on natural gas means less exposure to volatility in gas prices and supplies.
RAND 's "Implications and Policy Options of California's Reliance on Natural Gas " looks at the future of an energy market which exerts enormous influence over power supplies and prices in the Northwest. And California's power mix, dominated by hydropower and natural gas, resembles today what the Northwest energy mix will look like in 2020 under a business-as-usual scenario of energy development dominated by construction of new gas burning power plants.
The RAND report, supported by the Energy Foundation and RAND's Science and Technology Research Unit , assesses the benefits, risks, and implications of increased consumption of natural gas to meet California's growing energy needs. The report explores what could happen if demand for natural gas increases with development of new gas-fired power plants, but no upgrades or additions are made to add capacity to gas storage or inter- or intrastate pipelines. The report concluded California will have access to enough natural gas to serve the state's projected demand growth but gas transmission capacity and storage within the state is severely restricted.
The study suggests failing to take action could create problems similar to those the state experienced in 2001 – regular power supply shortages and escalating prices. The study looks at different scenarios for how to address the problem, including expanding infrastructure to accommodate projected demand growth, developing distributed combined heat and power (CHP) generation, diversifying the state's supply portfolio, reducing energy use through increased efficiency and improving demand management.
The scenario weighted toward supply side solutions reveals California can't simply build its way out of the problem. Even if the state had sufficient transmission and storage capacity, California will face stiff competition from neighboring states for natural gas supplies. And with a growing summer peak in gas consumption, managing storage is becoming more difficult. California has traditionally built up storage reserves in summer in preparation for the winter peak. Additional roadblocks to infrastructure expansion include timing (whether the state can bring it on line in time to accommodate accelerating demand), environmental concerns and other siting related barriers.
Without recommending a specific solution, the report concludes the most sensible strategy rests on a combination of measures. The scenario that would most limit new demand for gas, and attendant infrastructure expansion, is a combination with new renewables meeting 20% of projected electricity demand growth, reducing demand by 5% through conservation, and development of 2,000 megawatts of new distributed CHP capacity.
Another recent study, "Quantifying the Value that Wind Power provides as a Hedge Against Volatile Natural Gas Prices ," assigns a value of 0.5 cents per kilowatt hour (kWh) to the unique price stability of wind power. The study's two key assumptions are 1) that utilities and their customers value price stability and 2) that there is an implicit cost to guarantee the future price of natural gas.
The hedge study quantifies the price stability benefit of renewable generation technologies by equating it with the cost of acheiving stability in gas prices through financial derivatives (futures and swaps). The study found utilities pay a premium to lock in stable prices for natural gas that works out to about 0.5 cents per kWh when the gas is used for power generation. While the focus was on wind power because it is already competitive with gas-fired generation, the study notes other renewable technologies and energy efficiency could be assigned a similar hedge value. The authors conclude the study by making a general call to encourage future work to replicate their findings.
The Northwest Power Planning Council is currently collecting information about future costs of various power resources, including wind and gas-fired generation, as part of developing the agency's Fifth Power Plan , due out next summer. Although the Council is not assigning wind a specific hedge value, the models being used do take into account that there is a premium associated with locking in stable gas prices and that securing additional capacity in increasingly congested pipelines could also drive up the cost of gas-fired generation.
The RAND study was authored by Mark A. Bernstein , Paul Holtberg , and David Ortiz . The wind hedge study was written by Mark Bolinger , Ryan Wiser and William Golove of the Environmental Energy Technologies Division of the Ernest Orlando Lawerence Berkeley National Laboratory .
—
Trina Blake and Mark Glyde