For years natural gas and renewables were billed as the perfect energy parters. Variable renewable resources like solar and wind power, according to conventional wisdom, could be balanced by baseload gas supplies, which would produce half the CO2 emissions of other conventional fossil fuels.
What's more, many renewables supporters viewed natural gas as a so-called bridge technology that would sustain electricity and heat supplies for several decades as renewables steadily increased their shares in the world's energy mix.
Yet recent events show that these seemingly ideal teammates today are working less hand in hand and more fist to fist.
Natural gas prices, not oil prices, are now the key factor determining renewables' attractiveness to investors. Rather than complementing each other's energy production, natural gas and renewables increasingly are seen as economic competitors.
This trend began several years and continues to accelerate. Several utilities have made plans
to shift their generation toward renewable energy specifically as a hedge against volatile prices for fossil fuels, particularly natural gas.
US energy supplier Xcel Energy, for instance, in 2008 it would nearly quadruple its renewables capacity, mainly wind and solar power, to 8.75 GW by 2020, a move Xcel Chief Financial Officer Ben Fowke called "a hedge against rising fuel costs." Texas-based Austin Energy that year specifically cited the need to hedge against spiking natural gas prices when it signed a 20-year deal to buy electricity from a wood-burning power plant.
More recently, though, tumbling natural gas prices have made it tougher for renewables to compete in energy generation. New Yorker magazine writer David Owen, moderating a May 31 panel discussion in Aspen, Colorado, pointed out that cheap natural gas "is what's taken the wind out of the wind industry."
This market clash between natural gas and renewables seems likely to intensify through the decade in countries like Germany, which on May 30 became the first major industrialized nation to agree to wind down nuclear power generation in the wake of the Fukushima disaster in Japan, with a complete phase-out slated for 2022.
Switzerland has followed suit, with the first of five nuclear stations set to close by 2019. All will be shuttered by 2034. As a result, new generation sources must be found; Germany alone will need 10 GW of electricity just to fill the energy void left by its nuclear plant closures.
In addition, the economic battle between natural gas and renewables has spilled over into the political arena. Even as the natural gas and power sectors try to emphasize cooperation and coordination to the benefit of both industries, this year advertisements and a report on using gas-fired generation to support renewable resources have pitted wind power advocates against natural gas proponents.
The head of the American Wind Energy Association in March challenged some of the advertisements of America's Natural Gas Alliance, which said the gas industry helps "keep the lights on on a quiet day at the wind farm." AWEA said ANGA, which promotes natural gas use, was needlessly picking a fight with the wind power industry.
"They should be working with us, not attacking us," said AWEA CEO Denise Bode, noting to Platts that many gas-fired generators were unavailable during the freezing temperatures in Texas and the southwest US in February, and wind power contributed significantly to grid stability during the cold snap.
AWEA also challenged the conclusions of a report conducted by ICF International for the
Interstate Natural Gas Association of America and the INGAA Foundation. The report, which examined the amount of gas-fired generation needed to supplement the variable output of wind power and other facilities using renewable resources, concluded that by 2025 about 33 GW of gas-fired generation must be available to support renewables production. This would require adding about 5 Bcf/day of new delivery capacity for the gas industry.
The capital cost of adding pipeline or storage infrastructure to shore up variable renewables
generation could range from about $2 billion to $15 billion to 2025, and one of the challenges for the gas and power sectors will be recovering those costs, given the low use levels of gas infrastructure to back up renewable resources, INGAA officials said.
But Bode blasted the report, saying it "vastly overstates" the need for gas infrastructure and "assumes a fictional world that bears no relation to how a power market operates."
Utilities, energy producers and industry analysts have long spoken of the need to secure balanced energy portfolios by embracing an array of generation sources. Yet the iron law of
opportunity costs demands that political and corporate decision-makers make tough choices for future long-term energy supplies in post-Fukujima energy markets.
With climate-change worries limiting construction of coal plants and safety concerns at least slowing nuclear power's rebirth, renewables and natural gas are poised to fill the energy gap. One, though, might be given short shrift in energy planning for the decades ahead.
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