Renewables take on Natural Gas

Despite a flurry of new natural gas power plants installed within the last few years, the fuel’s steady availability and price has become uncreasingly shaky. A new study shows that Renewable Energy technologies provide valuable insurance against natural gas price uncertainty.

Boulder, Colorado – April 10, 2003 [] A study by Platts Research & Consulting (PR&C) conservatively estimates that generating electricity from renewable sources can ultimately save consumers more than US$5.00 per MWh by eliminating fuel price risk. Platts is the energy information, research, consulting and marketing services division of The McGraw-Hill Companies. The study estimates the costs that gas-fired generators face to deal with gas price uncertainty and addresses increasing volatility. It also looks at the relative value of Renewable Energy sources, which are not subject to fluctuating or increasing fuel prices, as a physical hedge against natural gas price movements. “The most provocative conclusion that we reach is that natural gas price volatility can be eliminated at little cost through the use of gas futures contracts,” says Brandon Owens, power consultant with PR&C and author of the study. “That’s the good news. The problem is that over the next five to 10 years, there is considerable uncertainty about where prices will settle, and hedging against rising gas prices with financial instruments could prove to be very expensive. So it’s not the volatility, but the potential for gas price increases that make renewables more attractive.” The study, “Power Price Stability: What’s It Worth?” comprehensively assesses the risks associated with possible natural gas price escalation and price volatility, along with the costs associated with guaranteeing gas delivery. “There are many factors that must be considered when comparing renewables to conventional generation sources, so I don’t think this research tells utilities they need to run out and contract for renewables,” says Owens. “But these numbers, along with recent gas price gyrations, highlight the need for market participants to remain acutely aware of fuel price risk.” This report is offered exclusively to members of Platts Research & Consulting’s Renewable Power Service (PRCRPS) To learn more about becoming a member, contact Adam Capage, Service Director, at 720-548-5404 or visit their Web site below.
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