Cheap gas and renewable energy make for a beautiful love story

Green power to benefit from low gas prices and falling renewable costs

January 05, 2013

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Last fall, the International Energy Agency (IEA) published its landmark annual World Energy Outlook. On dramatic change in this year’s report, compared to past reports, is the remarkable growth predicted in renewable energy.

The IEA calculates that the amount of renewable energy in the global electricity supply could double in approximately 20 years. Some of the factors driving this growth are obvious, like subsidies. Renewable energy subsidies jumped to $88 billion globally in 2011, 24 per cent higher than in 2010. Another reason that renewable energy will likely play a bigger part in the global power picture is not so obvious: natural gas.

To understand this relationship, you first need to understand coal power.

Gas-fired power coupled with renewable energy is a thing of beauty.

People in the developed world expect light at the flip of a switch; anything else would be seen as a massive failure of government and industry. Coal plants meet this expectation. They produce a steady flow of energy 24 hours a day, seven days a week. They are workhorses, churning out base-load power for years on end, so long as they are maintained. But coal plants cannot be shut down and restarted easily. They sometimes produce power even when the demand is not there. Most renewables do the exact opposite. Wind turbines produce power when the wind blows. When the wind is not blowing, coal picks up the slack.

Enter natural gas. Power plants that use the fuel are far more nimble than coal plants. They can produce power dependably for years, starting up and shutting down very quickly as needed. When the wind is not blowing, gas plants can quickly fill the demand gap and ensure a dependable electricity supply. Gas-fired power coupled with renewable energy is a thing of beauty. The combination releases low carbon dioxide emissions, since gas burns cleaner and renewables produce no CO2. Together they ensure a dependable base-load supply.

This love story is not a new one. Wind farms have been operating commercially for decades, along with gas power plants. Why haven’t these two power sources previously been partnered to create low carbon base-load power? The answer is cost.

Gas has historically been expensive relative to coal, but new technologies have unlocked gas resources in shale that were previously deemed impossible to produce, doubling the global gas resource base – a measure of the total gas in the ground rather than what might be economically recoverable.

Prices for gas have plunged as new production swamped markets. Along with a low gas price, the price of producing renewables has dropped steadily for the last decade and is expected to continue its decline. With current subsidies, both wind and certain forms of solar power have become competitive in price to traditional hydrocarbon-based energy, and even as subsidies ease up for renewables, the IEA expects renewables like wind to compete.

Just as important, the cost of coal power is likely to increase. Capital costs for a coal plant are massive. In Canada, new coal plants require a lot of bells and whistles thanks to recently introduced regulations. Under federal guidelines, new facilities must be about twice as efficient as the existing fleet. Many provinces also impose carbon pricing on coal-based energy (including Alberta and British Columbia). Those are costs that renewables will never see, while carbon pricing is relatively low for gas producers.

As long as gas prices remain flat, the cost of renewable energy continues to drop and coal-fired energy costs continue to rise, the renewables-natural-gas love story will blossom. But there are few guarantees these factors will remain in place over the long term, so the right policy framework needs to be in place to encourage investment in low carbon base-load power today.

Together renewables and gas can offer competitive base-load power with climate benefits. This may not sound too romantic, but it is a love story all the same.

Dan Zilnik is the manager, environment and climate, for Statoil Canada.

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