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LBNL report: Low natural gas prices haven’t detracted from wind’s hedge appeal

LBNL report: Low natural gas prices haven’t detracted from wind’s hedge appeal

Even with recent declines in natural gas prices resulting from the expansion of shale gas production, wind power proves to be beneficial for its ability to give buyers long-term price certainty, a new report from Lawrence Berkeley National Laboratory (LBNL) finds.

 

Drawing on a sizable sample of long-term power purchase agreements (PPAs) between existing wind projects and utilities, the report compares wind power prices that have been contractually locked in for decades to come with a range of long-term natural gas price projections.  Data from 287 PPAs totaling 23.5 gigawatts were used.

 

Some notable quotes from the report:

 

·      “Adding wind power to a portfolio of generating assets will partially hedge or insulate that portfolio against the risk of rising fuel costs over the long term.”

·      “In other words, not only do these recent wind PPAs provide ample long-term hedge value, but they are also, on average, competitive natural gas fuel savers in the near-term when compared to reference-case natural gas price projections for the U.S. as a whole.”

·      “To summarize, with gas prices as low as they are, and with gas price risk heavily skewed to the upside, it should theoretically be an opportune time to hedge.”


An accompanying slide deck released with the report also provides some insights from companies buying wind power.  Said Ken Davies of Google, “We see value in getting a long-term embedded hedge. We want to lock in the current electricity price for 20 years. We are making capital investment decisions [regarding data centers] on the order of 15 to 20 years. We would like to lock in our costs over the same period. Electricity is our number one operating expense after head count.”

 

And from Kurtis Haeger of Public Service Co. of Colorado: “We typically don’t have a lot of long-term natural gas contracts…especially ones that go out 25 years. So this [a PPA associated with the Limon 2 wind farm] is basically  providing a long-term fuel contract or energy contract at known prices.”

 

The report and accompanying slide deck are available online. In addition, LBNL will host a webinar on Thursday, March 14, at 1 p.m. EDT, during which report author Mark Bolinger will present the research and answer questions.  Those interested in attending will need to pre-register online.

 

Related articles:

 

U.S. electric utilities flock to lower-priced wind power, February 20, 2013

AWEA honors Alabama Power for using wind power to save dollars for Southeastern customers, December 3, 2012

Opinion: Wind energy delivers good value for Montana customers, November 26, 2012

First Wind's Bull Hill project now on line, highlights wind's affordability, November 20, 2012

Fact check: Exelon-funded report inflates wind integration costs, November 2, 2012

Alabama Power 'doubles down' on wind, October 9, 2012

IEA report finds cost of wind generation dropping as technology improves, June 7, 2012

WINDPOWER 2012 Update: Transmission for wind in western U.S.: Lower cost, lower variability, June 5, 2012

New study: Wind power can save Midwestern consumers between $3 billion and $9.5 billion annually by 2020, May 23, 2012

PTC, wind power bring cost savings to Iowa utility customers, May 10, 2012

Fact check: Lomborg lacking on wind's economics, emissions reductions, March 23, 2012

Mich. Public Service Commission: Renewable energy cheaper than coal, March 2, 2012

Fact check: American Enterprise Institute FAIL on study of wind costs, February 29, 2012

More savings for ratepayers in Southeast as Louisiana utility ups wind purchases, January 26, 2012

Southeast sees consumer savings, jobs from wind, but tax credit extension needed, January 10, 2012

Is wind power holding electricity costs down?, January 3, 2012

 

 

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