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Can Wind Power Keep Energy Prices in Check?

Our system of checks and balances in government is important to our democracy. Each of the three branches of government limits the powers of the others to prevent one branch from becoming too powerful. In a similar manner, wind power may serve as a check to future natural gas price hikes.

The U.S. Department of Energy recently authorized a second Texas-based export facility of domestically produced liquefied natural gas (LNG) to ship to countries in Asia and Europe. Many U.S. energy companies will likely take advantage of higher prices for natural gas in Asia by exporting U.S. LNG — gas converted to liquid form to make it easier to transport — to Korea and Japan, especially after Fukushima. The Federal Energy Regulatory Commission (FERC) is already reviewing 20 applications for LNG export facilities. If approved, we could see a significant amount of our domestic LNG being shipped overseas. More LNG going overseas will likely increase prices in the U.S. due to a decreased supply at home.

The Balance of Wind 

Dennis McKinley, Director of North American Wind Power Business for ABB North America, which works with turbine OEMs and wind developers, said wind power is an important part of our energy mix. 

“[Wind] acts as a check and balance system to keep natural gas prices in check,” McKinley said. “Manufacturing is beginning to return to the U.S. because of low natural gas prices. But if we just go all in with gas that makes gas prices rise even more.”

Natural gas prices fluctuate over time with highs and lows, said McKinley. With wind, companies always know what the fuel cost will be, which is why wind power plants are able to sign 20-year power purchase agreements, he said. “As exports increase, the price for LNG will increase, but there will be a line there — at some point, it will be cheaper to install wind and solar than to build new natural gas plants for power generation.”

McKinley suggests that without wind energy to provide competition for natural gas as an energy source, natural gas prices will be allowed to rise unchecked. 

Development Requirements 

If wind power is to compete with natural gas, the U.S. grid system will need to be updated, said McKinley. About 80 percent of the power load demand is on either coast (West and East), but most of the wind generating capacity happens in the plains, he said. 

For a wind farm to go up, developers need to figure out how to deal with transmission issues. Utilities today were built up over time by local wind farms that will drop a substation into an area to accommodate a local population, he said. That model has created a U.S. grid system that resembles a series of spider webs that aren’t connected together.

“We don’t really have a national infrastructure -- a more modern grid like Europe and China where you can connect across multiple regions and areas,” he said. “The infrastructure we have here is lacking compared to other countries in the world. We need smarter grids and better infrastructure.”

ABB is working on a developing a high voltage DC circuit breaker that will allow utilities to flip their transmission lines to HVDC to transmit power down long-distance lines, then flip back to AC once power reaches the end user. The new circuit breaker will also allow utilities to transmit power “ocean-to-ocean” similar to our national highway system and also section off areas that need to be fixed and keep transmitting power in other areas.

Back to Our Old Ways? 

Some energy company leaders have predicted that the LNG void will be filled by coal. In a recent CNBC interview, Andrew Lipow, President of Lipow Oil, said he believes utilities will switch back to coal if the price of natural gas continues to rise. He sees natural gas rising here to $5 per million BTUs (British Thermal Units) in the next couple of years. The cost is about $12/ MBTUs in Europe and $14/MBTUs in Japan right now, Lipow said.

McKinley doesn’t believe coal will replace natural gas if prices rise, that is why wind development is so important, he said. “Approximately 60 coal-fired plants will be retired in the next five years,” he said. “I think it would take a major shift to stop that from happening. Once that happens, utilities will need to fill the void.”  Some coal-fired power plants are already beginning to shut down or are being retrofitted for natural gas.

Addressing Intermittency

Greg Worden, a small wind project developer, green business consultant, and adjunct professor of business at Marylhurst University in Oregon, believes natural gas complements renewable energy well because it provides backup electricity generation when the wind falls and has a rapid ramp up capability. With the enormous discoveries of gas in Pennsylvania, New York and North Dakota, many states are fast laying plans to bring gas to their region through fast tracking pipeline permits, especially in Maine, he said. 

“Multiple gas companies are already making the pitch to cities, towns, and even fleet vehicle owners,” he said. “Within a decade, so goes the promise, New England states could nearly rid themselves of coal-fired electricity generation plants as well as oil-burning furnaces in homes. This cleaner energy future dovetails perfectly with intermittent renewable sources of electricity such as wind, solar, wave and tidal generators.”

But Worden sees three major downsides to increased natural gas development. First, gas could compete directly with renewables; second, prices for LNG overseas may exceed domestic prices; and third, when overall fuel prices, especially gasoline, drop there is a tendency to forget about renewables, he said. For instance, 16 of the 29 states with renewable energy portfolio standards are already considering reducing the quotas in favor of natural gas. 

Forgetting about wind energy is a mistake, according to McKinley. McKinley sees wind energy development as important to a healthy energy economy because consumers and businesses will turn to wind energy if natural gas prices rise significantly due to an increase in LNG exports. This could happen more quickly than consumers think if the proposed additional 20 export facilities are approved. In this way, wind energy may provide consumers with more power than just electricity for their homes.

Lead image: Wind turbine via Shutterstock

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