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Renewable Energy and Natural Gas: from Crisis to Opportunity

Renewable Energy and Natural Gas: from Crisis to Opportunity. Natural Gas Crisis?. Today’s tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon

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Renewable Energy and Natural Gas: from Crisis to Opportunity

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  1. Renewable Energy and Natural Gas: from Crisis to Opportunity

  2. Natural Gas Crisis? Today’s tight natural gas markets have been a long time in coming, and distant futures prices suggest that we are not apt to return to earlier periods of relative abundance and low prices anytime soon • Alan Greenspan, Federal Reserve Chairman, Testimony at Senate hearing, July 10, 2003

  3. Renewable Energy &Natural Gas Studies • Series of scenarios examined by US Energy Information (EIA) and Union of Concerned Scientists • Renewable electricity (portfolio) standards–10% or 20% by 2020 • Different penetrations based on target level, exclusions (e.g., munis, coops, small utilities, baseline deductions (e.g., hydro, MSW) • As important for what they say about the penetration of renewables as the policies to get there • Similarities • National Energy Modeling System (NEMS) • Same demand forecasts, fossil technology costs, fuel price assumptions • Examine wind, geothermal, solar, biomass technologies • No ocean, incremental hydro • Differences • EIA: pessimistic renewable energy costs, performance • UCS: realistic renewable energy costs (similar to national energy labs Scenarios for a Clean Energy Future study (2000) • Renewable electricity displaces ~60% gas, 40% coal

  4. Renewable Energy Saves Natural Gas (2020) 4.50 20% RE Penetration (EIA McIntosh AEO 2001 - 20% by 2020 RES) 20% renewables = 11% of 2020 gas use, or ¾ of 2001 residential consumption 4.00 19.7% RE Penetration (UCS AEO 2001 - 3.50 20% by 2020 RES) 3.00 9.8% RE Penetration (EIA McIntosh AEO 2001 - 10% by 2020 RES) 2.50 Natural Gas Displaced (Quadrillion Btus) 9.4% RE Penetration (EIA Murkowski AEO 2002 - 10% by 2020 RES no 2.00 sunset) 1.50 9.4% RE Penetration (UCS AEO 2001 - 10% by 2020 RES) 1.00 7% RE Penetration (EIA Bingaman AEO 2003 - 10% by 2020 RES inflation 0.50 adjusted) 6.5% RE Penetration (UCS AEO 2002 - - 10% by 2020 Senate RES) - 200 400 600 800 1,000 Increase in Renewable Energy Generation (Billion kilowatt-hours)

  5. Renewable Energy Reduces Natural Gas Prices (2020) 0.45 20% RE Penetration (EIA 20% renewables = 9% lower gas price McIntosh AEO 2001 - 20% by 0.40 2020 RES) 19.7% RE Penetration (UCS AEO 0.35 2001 - 20% by 2020 RES) 0.30 9.8% RE Penetration (EIA McIntosh AEO 2001 - 10% by 0.25 2020 RES) Reduction in Natural Gas Prices (Dollars per million Btu) 0.20 9.4% RE Penetration (EIA Murkowski AEO 2002 - 10% by 0.15 2020 RES no sunset) Next 2 slides 9.4% RE Penetration (UCS AEO 0.10 2001 - 10% by 2020 RES) 0.05 7% RE Penetration (EIA Bingaman - AEO 2003 - 10% by 2020 RES inflation adjusted) (0.05) 6.5% RE Penetration (UCS AEO - 200 400 600 800 1,000 2002 - 10% by 2020 Senate RES) Increase in Renewable Energy Generation (Billion kilowatt-hours)

  6. Renewable Energy Lowers Gas Bills for All Consumers Cumulative US Natural Gas Bill Savings, 2000-2020* (EIA 10% by 2020 RPS no sunset) Commercial Total = $9.1 Billion $1.8 Industrial $4.9 $2.4 Residential Source: EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/2002-03. February 2002. *Net present value using an 8% real discount rate.

  7. Commercial 16% Residential 31% Industrial 53% Natural Gas Use in Indiana by Sector, 2001 Total = 477 Billion Cubic Feet Source: EIA.

  8. Natural Gas Expenditures in Indiana by Sector, 2000 (billion $) Commercial Total = $3 Billion 10% savings = $300 million/year $0.5 Residential $1.0 Industrial $1.5 Source: EIA.

  9. Lower Natural Gas Prices Benefit Farmers • Natural gas is primary feedstock in production of nitrogen fertilizers • Gas = 90% of total cash cost of producing ammonia • 11 ammonia plants representing 21% of US capacity closed since 2000 due to high gas prices • Has caused nitrogen fertilizer prices to double over the last few years • Fertilizer prices increased 1/3 this year, raising cost to a typical farmer by $10-15/acre • US Dept. of Agriculture

  10. Renewable Energy Can Lower Natural Gas and Electricity Bills • $9.1 billion Natural Gas Bill Savings • $4.4 billion Electricity Bill Savings • $13.2 billion total Consumer Energy Bill Savings* Source: EIA, Impacts of a 10-Percent Renewable Portfolio Standard, SR/OIAF/2002-03. February 2002. *Cumulative net present value using an 8% real discount rate. Not including transportation.

  11. EIA: 20% RPS has Modest Impact on Consumer Energy Bills Source: EIA, Analysis of Strategies for Reducing Multiple Emissions from Electric Power Plants, July 2001, Tables E2 and E3, not including transportation.

  12. High EIA gas price well below today’s & many analyst projections Sources: UCS, Renewing Where We Live. September 2002. EIA, Short-term Energy Outlook---2003, July 8, 2003.

  13. Total Annual Consumer Energy Bills Savings* 10 8.3 10% by 2020 Senate 8 RES compared to BAU ($2.91/Mcf Avg. Wellhead Gas Prices) 6 Billion 2000$ 3.8 10% by 2020 Senate 4 RES compared to BAU - "High Gas" 2 ($3.31/Mcf Avg. Wellhead Gas Prices) 0 2020 *Not including transportation. Source: UCS, Renewing Where We Live. September 2002. Higher Natural Gas Prices Mean Greater Energy Bill Savings

  14. EIA Wellhead Gas Price Forecasts 1997 - 2003 (2000$/Mcf)

  15. EIA: RPS Lowers Cost of 4-Pollutant Reductions Source: EIA, Strategies for Reducing Multiple Emissions from Electric Power Plants, July 2001, Table H3.

  16. How quickly can renewables make a difference? • American Wind Energy Association • 6,000 MW by end of 2003 = 0.5 Bcf/day = 15% of 3-4 Bcf/day shortage • Transmission plans proposed for 30,000 MW by end of 2007 = ~3 Bcf/day • 100,000 MW by 2013 • 600,000 MW competitive @$4/mmBTU gas • Needs • Extend PTC for 5 years • RPS • Transmission tariff reform to increase capacity • Tran-prairie and Inter-Mountain transmission “pipelines” • Solar Energy Industries Association • Could alleviate 1/3 of gas shortage (I.e., 1-1.3 Bcf/day) by 2005 • Investment tax credit • Production tax credit • Rebate • Repeated short-term crises because ignore mid- and long-term • RPS has been filed in Congress since 1997

  17. Conclusions • Renewable electricity saves natural gas (up to 11%) • Renewable electricity restrains growth in gas prices (up to 9%) • Natural gas bill savings (at least up to 10% and possibly up to 20%) offsets higher renewable electricity cost for all consumers • Even with high estimates of renewable costs • Even with low gas prices • Renewable electricity provides hedge against higher gas prices and emission reduction costs • AND renewable electricity creates jobs, keeps revenues in local economy, reduces need for gas imports, reduces emissions • Voluntary programs will not make a dent – 1-2% of 2020 sales • Renewable electricity standard benefits economy and environment • Efficiency AND renewables = best combination. UCS Clean EnergyBlueprint: up to 31% less natural gas; 27% reduction in gas price

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