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 and the Environment March 9, 2004 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? Environmental Energy Technologies Division • Energy Analysis Department
Natural Gas Prices Are High and Volatile 10 10 9 9 NYMEX natural gas 8 8 Daily price history of 1st-nearby futures strip on 03/04/04 $/MMBtu (nominal) $/MMBtu (nominal) 7 7 NYMEX natural gas futures contract 6 6 5 5 4 4 3 3 2 2 1 1 0 0 Mar-07 Mar-08 Mar-09 Mar-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 Source: NYMEX Environmental Energy Technologies Division • Energy Analysis Department
NPC Gas Price Forecast (Henry Hub) Environmental Energy Technologies Division • Energy Analysis Department
EIA, NYMEX Imply “Balanced Future” 8 $/MMBtu ($2002 at Henry Hub) 7 6 REACTIVE PATH AEO 2004 5 NYMEX 4 BALANCED FUTURE 3 2003 2005 2007 2009 2011 2013 2015 2017 2019 2021 2023 2025 Environmental Energy Technologies Division • Energy Analysis Department
…But Be Wary of Price Forecasts… Historical AEO Wellhead Gas Price Forecasts vs. Actual Wellhead Price 8 90 86 91 7 Wellhead Price (Nominal $/MCF) 92 04 6 85 89 93 03 5 94 02 95 01 4 00 87 99 98 3 97 2 96 Actual Wellhead Price 1 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 Source: EIA Environmental Energy Technologies Division • Energy Analysis Department
Topics 1) Uncertainty over future natural gas prices 2) The value of long-term fixed-price contracts for renewable energy 3) What impact do renewables have on gas prices? 4) What impact do high gas prices have on renewables? Environmental Energy Technologies Division • Energy Analysis Department
LBNL’s Accounting for Fuel Price Risk… Question: How to compare the levelized cost of fixed- price renewable to variable-price gas-fired generation? Current Practice: to • Cost of renewables is often compared to cost of gas-fired generation based on uncertain fuel price forecasts Best Practice: to • Cost of renewables should be compared to cost of gas- fired generation based on a guaranteed fuel price How do guaranteed forward gas prices compare to uncertain gas price forecasts?? Environmental Energy Technologies Division • Energy Analysis Department
Forward Prices Exceed Price Forecasts November 2000 November 2001 4.1 4.7 3.9 4.2 Natural Gas Price ($/MMBtu) Natural Gas Price ($/MMBtu) 3.7 Implied Forward Swap Curve (Enron) 3.7 3.5 EIA Forecast (AEO 2001) 3.3 3.2 3.1 Implied Forward Swap Curve (Enron) 2.7 2.9 EIA Forecast (AEO 2002) 2.7 2.2 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 Source: Enron and EIA Source: Enron and EIA November 2002 4.0 October 2003 5.2 5.0 Natural Gas Price ($/MMBtu) 3.8 Natural Gas Price ($/MMBtu) NYMEX Futures Price (Annual Average) 4.8 EIA Forecast (AEO 2004) 3.6 NYMEX Futures Price (Annual Average) 4.6 EIA Forecast (AEO 2003) 4.4 3.4 4.2 3.2 4.0 3.8 3.0 2004 2005 2006 2007 2008 2009 2003 2004 2005 2006 2007 2008 Source: NYMEX and EIA Source: NYMEX and EIA Environmental Energy Technologies Division • Energy Analysis Department
Levelized Premiums Average $0.7/MMBtu 1.0 0.7 0.9 0.6 Implicit Premium ($/MMBtu) 0.8 Implicit Premium (¢/kWh) 0.5 0.7 0.6 0.4 0.5 0.3 0.4 Enron - AEO 2001 (November 2000) Enron - AEO 2002 (November 2001) 0.3 0.2 NYMEX Futures - AEO 2003 (November 2002) 0.2 Williams Physical Supply - AEO 2003 (November 2002) 0.1 NYMEX Futures - AEO 2004 (October 2003) 0.1 Average 0.0 0.0 2-Year 5-Year 6-Year 7-Year 10-Year Contract Term Environmental Energy Technologies Division • Energy Analysis Department
Implications Whether these premiums represent “hedge value” or 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 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? 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 Reduction in US Gas Wellhead Average Implicit Date of Model National RPS Gas Consumption Price Reduction Inverse Supply Author Study Used Modeled Elasticity Quads (%) in 2020 $/MMBtu (%) in 2020 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 1.3 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%) 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 Average inverse elasticities mostly range from ~1 to ~3: for each 1% drop in demand, gas prices fall 1%-3% 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) Environmental Energy Technologies Division • Energy Analysis Department
Simplified Method – Results Aggregate Impact of Current State RPS on Gas Prices 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 0.00 Change in Gas Price, All Sectors (2002 $/MMBtu) US Savings in 2025 (2002$) : -0.02 $1.6 Billion ($20/MWh) -0.04 -0.06 $3.3 Billion -0.08 ($39/MWh) -0.10 -0.12 $4.9 Billion Inverse Supply Elasticity = 1.0 ($59/MWh) -0.14 Inverse Supply Elasticity = 2.0 Inverse Supply Elasticity = 3.0 -0.16 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? Environmental Energy Technologies Division • Energy Analysis Department
With Gas Prices this High… 10 10 9 9 NYMEX natural gas 8 8 Daily price history of 1st-nearby futures strip on 03/04/04 $/MMBtu (nominal) $/MMBtu (nominal) 7 7 NYMEX natural gas futures contract 6 6 5 5 4 4 3 3 2 2 1 1 0 0 Mar-07 Mar-08 Mar-09 Mar-10 Apr-90 Apr-91 Apr-92 Apr-93 Apr-94 Apr-95 Apr-96 Apr-97 Apr-98 Apr-99 Apr-00 Apr-01 Apr-02 Apr-03 Apr-04 Apr-05 Apr-06 Source: NYMEX Environmental Energy Technologies Division • Energy Analysis Department
…Renewables are Cost-Competitive Levelized Cost of New Generation Over Range of Gas Prices 80 NYMEX Futures Strip Levelized Cost of Energy ($/MWh) 70 60 Wind (without PTC) 50 40 Wind (with PTC) 30 20 Natural Gas Advanced Combined Cycle 10 0 0 1 2 3 4 5 6 7 8 Natural Gas Price ($/MMBtu) Source: AEO 2004 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 Relative Cumulative Capacity (GW) Coal-Fired Capacity 15 Renewables Capacity 10 Gas-Fired Capacity 5 0 -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 Source: EIA (AEO 2004) Gas prices $0.20/MMBtu higher (on average) in this scenario Environmental Energy Technologies Division • Energy Analysis Department
Recommend
More recommend
