Will Gas Break Wind? Will Wind Pass Gas?
April 7, 2014
In conflicting articles, Bloomberg tries to get its arms around the race between Wind power and Natural Gas. The two have been neck and neck leaders for most new electrical capacity, with solar coming up on the outside.
Wind power in the U.S. is on a respirator.
The $14 billion industry, the world’s second-largest buyer of wind turbines, is reeling from a double blow — cheap natural gas unleashed by the hydraulic fracturing revolution and the death last year of federal subsidies that made wind the most competitive of all renewable energy sources in the U.S.
Without restoration of subsidies, worth $23 per megawatt hour to turbine owners, the industry may not recover, and the U.S. may lose ground in its race to reduce dependence on the fossil fuels driving global warming, say wind-power advocates.
They place the subsidy argument in the context of fairness, pointing out that wind’s chief fossil-fuel rival, the gas industry, is aided by the ability to form master limited partnerships that allow pipeline operators to avoid paying income tax. This helps drive down the cost of natural gas.
“Cheap gas has definitely made it harder to compete,” said David Crane, chief executive officer of NRG Energy Inc., which builds both gas and renewable power plants. He said that with the subsidy, companies were able to propose wind projects “below the price of gas.”
Both wind and gas cost about $84 a megawatt hour to install worldwide, excluding subsidies, according to Bloomberg New Energy Finance. That’s 3 percent higher than a coal-fired power plant costs and about half that of nuclear reactors.
Wind was responsible for 4.8 percent of America’s electricity used in January. That’s the highest January total ever, breaking the record from last January, which broke the record for the January before that, and so on. The chart below shows the latest data from the U.S. Energy Information Association.
America’s rising wind power feels unstoppable. That’s because in many areas of the country wind has reached an important tipping point: becoming cheaper than coal and natural gas. In fact, states getting the most electricity from wind include gas-rich Texas, Oklahoma and Colorado.
Onshore wind power has come of age, and not just in the U.S. This next chart shows the levelized cost of energy worldwide, using data from Bloomberg New Energy Finance (BNEF). Average onshore wind power now costs the same as gas worldwide, at about $84 per megawatt hour. That’s without subsidies.
In the U.S., competition between wind and gas is fierce. New techniques known as fracking (or hydraulic fracturing for the timid) have overhauled the U.S. energy economy and brought America some of the cheapest natural gas prices in the world. In order to compete, U.S. wind relied on a tax credit, which expired at the end of last year.
Even without the subsidy, wind prices are getting cheaper as the technology improves. The cost of wind energy has declined by 43 percent over the last four years. There’s a backlog of projects that already qualified for the tax credit that will ensure a steady pace of turbine growth for the next few years, according to BNEF wind analyst Amy Grace.
The future of the wind tax credit is contentious and uncertain, but so is America’s cheap gas prices. As expensive coal plants are retired, utilities are switching to cheaper natural gas, driving up the price, says Grace. Also, the U.S. Energy Department is opening up domestic gas for exports for the first time. By 2020, U.S. shale gas may account for 20 percent of the global market, according to a Citigroup estimate.
If Americans have to buy gas anywhere near international market prices, wind wins. Gas may be booming, but you can expect many more wind records to come.
The export gas rush is on. From the Pacific Northwest to the Mid-Atlantic to the Gulf states, companies are moving forward with plans to export U.S. natural gas despite controversy over the impact on prices and pollution.
Russia’s incursion into Crimea has intensified pressure on the Obama administration to expedite approvals for export facilities. Some members of Congress say U.S. exports can weaken Russia’s hold on the Ukraine, which depends heavily on Russia for natural gas. Others doubt they’d give the U.S. geopolitical leverage — at least not anytime soon.
The export quandary is relatively new for the USA. Until only a few years ago, the country was importing a sizable share of natural gas, and companies were seeking to build import — not export — terminals.
“We have crossed a line into an era when we could be massively exporting America’s natural gas, sending the jobs and consumer benefits abroad along with the fuel,” Sen. Edward Markey, D-Mass., said last month, predicting higher domestic prices. “The level of exports approved is now more than every single American home consumes.”
“The propane crisis this winter was a cautionary tale of going too far too fast,” says Trent Duffy, spokesman of America’s Energy Advantage, a group of manufacturers including Dow Chemical that oppose LNG exports to non-FTA countries. He notes propane prices soared, because companies were exporting a record amount at a time when a cold winter increased U.S. demand.
Duffy says LNG exports could hike manufacturing costs and hurt the U.S. economy. Assuming a large volume of exports, a December 2013 Dow-funded study by Charles Rivers Associates predicts domestic natural gas prices could almost triple by 2030.
Mark Ruffalo in Huffington Post:
But let’s be clear about three things.
First, this push for exports has nothing to do with the crisis in Ukraine. Even if LNG exports approvals are fast tracked, there is currently no infrastructure to export the gas until at least 2016. This push reflects an industry agenda that existed before the crisis erupted in Ukraine, and under no circumstances can LNG exports help alleviate it.
Second, once the infrastructure is built, U.S. LNG exports will likely go to Asia, where industry can fetch the highest price, not to Europe. The legislation under discussion would deem all exports in the public interest if the gas is sent to a member nation of the WTO. This includes most countries in the world, including China, India, Japan, Brazil and, ironically, Russia. The oil and gas industry wants these export approvals to drive up their profit margins by selling gas overseas, which ultimately will increase the price of gas for U.S. consumers.
Third, exports will drive additional drilling and fracking and exacerbate climate change. The International Panel for Climate Change recently released a reporthighlighting the dire consequences yet to come from climate change if action is not taken. Last fall, the IPCC found that methane is even worse for the climate than previously thought: Over a 100-year time scale, methane is 34 times more potent in the atmosphere than CO2; over 20 years, 86 times more potent. We know that methane is emitted during oil and gas drilling, fracking and distribution. Climate scientists warn that we must leave fossil fuels in the ground and aggressively transition to renewable energy to avert catastrophic climate change. The energy policy of exporting U.S. fracked gas all over the world will further contribute to climate change