Energy analysts around the U.S. were shocked when the price of wind energy per mega-watt hour (MWh) fell below the price of natural gas in Texas. According to some analyses, Texas consumers were paying $5.55 more per MWh of natural gas than wind energy for the fiscal year 2009. This was encouraging news to many who work in the renewable energy field, because renewable energy is intermittent and can be difficult to predict how much energy will be produced. To stabilize an inconsistent energy supply, utility providers back up their renewable energy suppliers with a more reliable energy source. 

Natural gas is often the favored back up energy source in the U.S. as it can provide flexible generation, new production facilities can easily be built, there is a large natural supply, and it produces about half of the emissions of coal. Energy investors look for opportunities when renewable energy prices fall below the natural gas price curve, at which time they try to capture the spread between the two. Having wind prices fall below natural gas prices was promising for the renewable industry, as it showed that renewables could prove to be a profitable investment. 

However, the encouraging pricing trend for renewable energy was disrupted in late 2009 as natural gas prices fell to a five year low of $3.71 per thousand cubic feet. Before this, natural gas had been selling at a five year high in 2008 at an average of $7.96 per thousand cubic feet and since 2005 had not dipped below the $5.00 mark per thousand cubic feet. Analysts contribute the price decrease to several factors. In 2008, extraction began on one of the world’s largest natural gas resources, the Marcellus Shale reserve, which extends from southern New York, eastern Ohio, Pennsylvania, and West Virginia. Some geologists estimate there is enough natural gas here to supply the East Coast for the next 50 years.   

Another reason some analysts speculate that natural gas prices have significantly decreased is due to the structuring of extraction contracts. Currently some extraction outfits have very narrow profit margins due to the low price of natural gas; however, instead of stopping production until the price of natural gas rises, some outfitters continue to extract. The reason for this is some natural gas extractors have a contractual obligation to drill or they lose their rights to extract in the future.   

Regardless of the current low pricing, many companies are looking to invest in natural gas. Chevron (News - Alert), eager to benefit from the Marcellus Shale reserve, recently bought Atlas Energy, which owns drilling rights in the area, for $4.3 billion. Investors’ enthusiasm for natural gas has negatively impacted the renewable’s market. Michael Polsky’s wind farm is a perfect example of the change in investors’ attitudes towards renewables after the price decrease in natural gas. In 2008 Polsky had no trouble obtaining financing from banks, but as of today he is finding it difficult to sell his product, as a Virginia utility company has recently dropped him as a provider citing the cheap prices of natural gas. It is not just Polsky who has experienced a sharp dip in sales, according to the American Wind Energy Association; installations of new wind power deployments have dropped 72 percent from 2009 levels.   

Paige Richardson (News - Alert), of the Smart Energy Coalition, a West Coast based renewable energy lobbying group, told Zpryme recently that, “the decrease in investment is to America’s detriment.” She continues, “One major benefit of energy generation from renewable resources is distributed generation, and we shouldn't let natural gas or other fossil fuels keep America from being a leader in energy innovation. Furthermore, renewable energy can provide many jobs to America’s ailing economy, in manufacturing, installation, and research and development.”  America has already fallen behind China and the European Union in wind energy. The EU more has more than doubled the U.S. wind energy capacity of 84.8 megawatts compared to the U.S.’s 40.1 megawatts.  

Richardson further explained, “natural gas exacts a heavy environmental toll. In order to extract natural gas, many producers use a method called fracking, which injects millions of gallons of sand, water, and other chemicals into the shale, causing contamination of underground aquifers  and drinking water.” The problems associated with fracking were recently publicized in the documentary “Gasland.” One segment showed how residents of a town in Colorado that was near a natural gas extraction site were able to light their tap water on fire due to contamination from fracking.  

Despite the fact that natural gas can cause environmental damage, the U.S. lacks the renewable power capacity to generate enough electricity to meet demand. Natural gas, while not the “greenest” source of energy, does emit approximately half the emissions of coal and lends stability to the power supply in a more desirable manner than the intermittent nature of solar and wind power. As a result, natural gas’s current low price and our nation’s current economic problems are dampening renewable energy investment.

Looking ahead, however, the future of renewable energy should not be discounted. According to a recent Florida TaxWatch Report, 70 percent of Florida’s utility customers would be willing to pay a dollar more on their monthly electric bill if it helped renewable investments. Renewable energy is America’s long-term future, but the road requires expensive infrastructure updates and technology improvements. Until then, natural gas, while perhaps not as ideal as wind and solar power, is an important source in helping America reach its clean energy goals. 

For more information, please contact us at [email protected], subject-line: “Renewables.”