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Low Natural Gas Prices Haven't Detracted from Wind's Hedge Appeal, Says LBNL

Even with recent declines in natural gas prices resulting from the expansion of shale gas production, wind power proves to be beneficial for its ability to give buyers long-term price certainty, a new report from Lawrence Berkeley National Laboratory (LBNL) finds.

Drawing on a sizable sample of long-term power purchase agreements (PPA) between existing wind projects and utilities, the report compares wind power prices that have been contractually locked in for decades to come with a range of long-term natural gas price projections.  Data from 287 PPAs totaling 23.5 gigawatts were used.

Some notable quotes from the report:

  • “Adding wind power to a portfolio of generating assets will partially hedge or insulate that portfolio against the risk of rising fuel costs over the long term.”
  • “In other words, not only do these recent wind PPAs provide ample long-term hedge value, but they are also, on average, competitive natural gas fuel savers in the near-term when compared to reference-case natural gas price projections for the U.S. as a whole.”
  • “To summarize, with gas prices as low as they are, and with gas price risk heavily skewed to the upside, it should theoretically be an opportune time to hedge.”

An accompanying slide deck released with the report also provides some insights from companies buying wind power.  Said Ken Davies of Google, “We see value in getting a long-term embedded hedge. We want to lock in the current electricity price for 20 years. We are making capital investment decisions [regarding data centers] on the order of 15 to 20 years. We would like to lock in our costs over the same period. Electricity is our number one operating expense after head count.”

And from Kurtis Haeger of Public Service Co. of Colorado: “We typically don’t have a lot of long-term natural gas contracts…especially ones that go out 25 years. So this [i.e., a PPA associated with the Limon 2 wind farm] is basically  providing a long-term fuel contract or energy contract at known prices.”

The report and accompanying slide deck is available online. In addition, LBNL will host a webinar on Thursday, March 14 at 1 p.m. EDT, during which report author Mark Bolinger will present the research and answer questions.  Those interested in attending will need to pre-register online.

This article was originally published in AWEA Wind Energy Weekly and was republished with permission.

Lead image: Wind turbines via Shutterstock

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