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Renewables
Why Renewables? The Pros
Decreased dependence on volatile fossil fuel markets
According
to DOE data, natural gas
spot market prices are currently about $5.51
per thousand cubic feet, about $2.30 per thousand
cubic feet more than the 2002 average, for
an increase of 70 percent. Prices to electric
utilities fluctuated from about $2 to $3 per
1000 ft3 for most of the late 1980s and 1990s.
In 2000, however, gas prices started to climb,
and reached over $8 per 1000 ft3 by December
2000. Prices peaked at $9.47 in January 2001,
but by December 2001 had collapsed down to
$3.11. Such fluctuations are likely to continue
in the future - but of course no one knows
just when and how much. Electricity systems
using natural gas, therefore, are exposed to
this large fuel price risk - a risk that carries
a cost. Renewables, in contrast, are not subject
to this risk, as they don't use fossil fuels.
But what's the value
of this fuel diversity? It's a difficult figure
to pin down. One recent
study from the Lawrence Berkeley National
Laboratory has estimated that natural gas
purchasers pay a premium of about 0.5 cents/kWh
for long-term natural gas contracts, relative
to spot natural gas prices. In other words,
the market value of long-term price stability
for natural gas is about 0.5 cents/kWh. Wind,
however, doesn't come with an explicit stability
surcharge, but one could argue that it provides
a benefit that the market values at roughly
0.5 cents/kWh. Another study from Platts Research
and Consulting, The Value of Renewables As
A Hedge Against Gas Price Movements, using
natural gas cost projections, estimates the
hedge value of renewables to be about $5.20/MWh. "Additional
information on this matter was recently produced
by the National Wind Coordinating Committee,
looking at how diversification of the country's
generating fleet can help to address fossil
fuel cost increases and price volatility concerns.
See the document entitled: Wind
Energy and Natural Gas.
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