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Friday, June 1, 2012

Gas versus renewables? Only if we let it happen.

One of the criticisms of the growing use of – and drilling for – natural gas is that it will diminish the use of renewable energy.  The publication of the International Energy Agency’s “Golden Rules for a Golden Age of Gas has spawned predictable and slightly hyperbolic headlines, such as 'Golden age of gas' threatens renewable energy, IEA warns.

Actually, IEA said this (p. 80):

The global outlook for renewable sources of energy is not affected substantially by the increased use of gas in the Golden Rules Case, with volumes and shares of output remaining very close to those in the baseline case. Due to lower gas (and consequently electricity) prices, the growth of electricity output from non-hydro renewables is reduced globally by 5% compared with our baseline.

Still, there is legitimate cause for concern.  The argument goes like this.  Abundant supplies of natural gas enabled by the shale gas boom have lowered energy prices in the US, and could do so globally.  Renewable energy is nominally more expensive, in large measure because the energy playing field is grossly tilted against renewables.  The cost of coal-fired power, for example, does not include the costs of the enormous and growing damage that coal does to public health, the environment, and the climate. The result of low gas prices could be – could be – that renewables are crowded out by shale gas-fired power in this unfair competition. 

But “could be” does not mean “will be.” 

In fact, renewable energy appears to be booming in the midst of the US shale gas boom.  Deep in the heart of gas country, Texas this year will exceed its 2025 renewable energy requirement – 13 years ahead of schedule - thanks to its abundant wind resources.  In the PJM power pool, the world's largest wholesale electricity market that extends from Illinois to New Jersey, electricity generated by renewable energy doubled from 2005 to 2011.  And Goldman Sachs Group Inc. plans to invest $40 billion over the next ten years in renewable energy projects - an area the investment bank called one of the biggest profit opportunities since its economists got excited about emerging markets in 2001.

More importantly, natural gas can help renewables and ease the path to a low-carbon future. The key is government policies on renewable energy (which are in need of reform).

IEA said (also on p. 80):

There are factors working both against, and in favour of, renewables in a world of more abundant gas supplies. Depending on the type of policies in place, an abundance of natural gas might diminish the resolve of governments to support low and zero-carbon sources of energy: lower gas prices (and therefore lower electricity prices) can postpone the moment at which renewable sources of energy become competitive without subsidies and, all else being equal, therefore make renewables more costly in terms of the required levels of support. However, an expansion of gas in the global energy mix can also facilitate greater use of renewable energy, if policies are in place to support its deployment, given that gas-fired power generation can provide effective back-up to variable output from certain renewable sources. Moreover, lower electricity prices can encourage customer acceptance of a higher component of electricity from renewable sources.

Ultimately, the way that renewables retain their appeal, in a gas-abundant world, will depend on the resolve of governments. (emphasis mine)

Thus, it is up to us.

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