Renewables soon could knock the wind out of natural gas

Source: Nathanial Gronewold, E&E reporter • Posted: Friday, October 9, 2015

AUSTIN, Texas — Energy industry experts here predict that the growth of renewable energy will challenge natural gas in the years to come, based purely on the economics.

Reporting relative ease with garnering long-term renewable power contracts with electricity distributors, renewables investors were beaming with optimism at the annual South by Southwest Eco conference, which wrapped up yesterday.

Booming investments in wind and solar in Europe and East Asia have driven the costs of those power sources down substantially in recent years, with some renewable energy technology tracking firms arguing that utility-scale renewables have achieved “grid parity” with fossil fuels in some markets.

It’s a bold claim given the low cost of fossil fuels globally, including coal and natural gas. But it’s a fact, panelists said. The strengthening interest in renewables that they’re seeing from utilities suggests this emerging challenge faced by natural gas suppliers to Europe and parts of Asia could make its way to the United States at some point.

“Renewables have momentum,” said Shalini Ramanathan, a vice president at Renewable Energy Systems Americas Inc.

Ramanathan explained that utility companies are keen on adding renewables to their mix because a large wind power project promises stable pricing for 20 years or longer, based on contracts. Even though fossil fuels are cheap now, power companies remember when this wasn’t the case and seem to be growing tired of the volatility and unpredictability, she said.

“They like price stability,” Ramanathan said. “Now the conversation is how quickly would you like to lock down this hedge against volatility.”

Ira Joseph, an analyst at PIRA Energy Group, repeated the view of others that natural gas — especially liquefied natural gas (LNG) — faces challenging market conditions overseas in the coming years as a result of the rise of renewable energy in Europe and Asia.

“European gas demand … probably bottomed out in 2014 back to levels they were at in the late 1990s and early 2000s,” Joseph said in an earlier phone interview. “So the growth has been taken away mostly because renewables have been added to power generation.”

‘More volatility is better for renewables’

More bearish news for LNG has come in recent weeks when Japan moved to restart most of its nuclear power generation, further pressuring international LNG prices.

Ramanathan suggested the expanding power sector in the United States could favor renewables over natural-gas-fired generation, as well. Others hedged this view.

“The phenomenon isn’t happening everywhere,” said Zeina El-Azzi, an independent renewable energy adviser.

Though El-Azzi acknowledged renewables seem to be gaining ground in the United States, she said uptake depended on the distance of a project to the grid or a demand center. But she noted that as more is built in the United States and abroad, costs for deploying renewable energy continues to decline with innovation and efficiency gains. That’s making long-term, steadily priced renewable power increasingly attractive to U.S. power companies.

She agreed that, though gas prices are low, it’s the ups and downs in price swings that are beginning to wear down utility companies and having them look at renewables as viable options for expanding power generation in the United States.

“More volatility is better for renewables,” El-Azzi said.

But unlike in Europe, where gas may be challenged, natural gas supplies in the United States will likely play a role alongside renewables in updating and transforming the U.S. power grid, some speakers argued.

Still, Ramanathan said it’s becoming clear that renewable power has the wind behind its back, even in the United States.

“Renewables are in a virtuous cycle,” she said.