This post originally ran on Todd Woody's Green Tech Blog at Forbes.
Judging by the numbers, you’d be half-right to conclude that 2011 was a boom year for U.S. renewables. Solar showed explosive results as installations more than doubled, delivering 1.86 new gigawatts in a market that previously was measured only in megawatts. Wind too had a successful year with 6.8 gigawatts of new turbines connected to the grid. Looking at the long list of projects readying for construction, 2012 looks likely to put even more impressive numbers on the board.
But behind the impressive installation numbers is a worrying trend for anyone who wants our country to stay on the path to a clean energy future. The reality is that utilities are not contracting nearly enough new renewable energy to sustain the pace of progress we’re seeing today – and developers are starting to mothball their development pipelines. Unless we make policy changes now, new wind and solar construction starts will slow to a trickle in the second half of this decade.
Because power plants take anywhere from two to five years to complete, the construction activity we see today is the result of long-term utility power purchase agreements (PPAs) signed several years ago. Thus most of the large renewable energy projects driving this year’s numbers flow from PPAs issued between 2007 and 2010.
Unfortunately the flow of PPAs has been reduced to a trickle. California’s utilities are slowing down as they reach contractual fulfillment of the targets set through the state’s Renewable Portfolio Standard (RPS). And RPSs have been much slower to spread to other states than was predicted. As a result, nowhere near the number of PPAs is being issued to maintain the pace of construction into the second half of this decade.
Why is this happening? A confluence of forces is undermining the policies that have been driving renewable procurement. Recession and election year politics are certainly big contributors. Demand for power is flat, ratepayers are sensitive about costs, and politicians prefer grandstanding to serious talk about energy. We can’t do much to about that right now, but there are encouraging signs an economic recovery is underway and thankfully the election will be over in November.
However, the real elephant in the room for renewable energy is historically low natural gas prices related to the boom in “fracking,” a process to release natural gas by fracturing the underground rock in which it is trapped. Today, spot prices for natural gas in the U.S. are around $2.25 per MMBtu. At that price, gas can theoretically be burned to make electricity at just $0.02-0.03 per kWh. (In reality you can’t get a long term contract for gas at that price, but even $6/MMBtu gas delivers electricity at $0.04-0.07/kWh). Despite the fact that wind and solar are more affordable than ever, low natural gas prices make the cost gap between fossil and renewable power appear much larger.
This is a problem because politicians and regulators get caught up in the false dilemma of fossil vs. renewable generation. It’s false because no one would really contemplate building a fleet of all-gas or all-renewable power plants. And yet, our policymakers still fret that choosing anything other than gas will expose them to ratepayer backlash.
Renewable advocates that get cornered by the gas-vs-renewables dilemma are left with two ineffective arguments. They can try to prove gas prices will inevitably rise again (which is likely true), but this doesn’t solve the policymaker’s issue and is little more than spitting into the wind. Or, they can argue the cost of natural gas should be higher because of fracking’s impact on the environment. While this is probably also true, it comes across like sour grapes or killing ratepayers’ golden goose.
I think there’s a much more compelling vision to get behind. Instead of fighting low-cost gas, renewable advocates need to embrace it. The truth is we have never been in a better place to deliver a clean energy future – because wind, solar, and natural gas have never been as affordable as they are today. In a portfolio that combines all three, we get the best features each has to offer. Wind and solar are 100% clean, carbon free, and in almost infinite supply; natural gas is dispatchable – though still polluting it’s cleaner than coal, and its low cost will help to offset any increase associated with renewables.
What does that deliver? A clean, reliable, secure, independent power system at a blended price that won’t break ratepayers’ wallets. Now that’s something to get fired (or solared) up about!