26 September 2008 by David R. Jones,
As renewable energy has moved from the margins to the mainstream of power production, the arguments over its value are becoming increasingly familiar. These are both pro (low-carbon or carbon-neutral electricity production from home-grown resources, free fuel from wind, solar, geothermal and hydropower) and con (wind and solar energy's intermittency and renewables' power-generation costs typically exceeding those of conventional fuels).
Now a new factor in the equation is emerging in favor of renewable energy: Power from renewable resources can provide a hedge against volatile oil, natural gas and coal prices.
In the short run, oil and natural gas prices have ridden a market roller coaster in 2008, with crude oil not long ago topping $140 per barrel until falling recently to near the $100 mark. As usual, natural gas prices have largely followed suit, and as a result many power suppliers in the United States, the UK and other countries are preparing to hike consumer prices at a time when industrialized economies are bracing for economic slowdowns or recessions.
Some utilities, though, are beginning to see renewables not only as a way to reduce greenhouse gases but also their risks in fuel markets. US utility Austin Energy specifically cited the need to hedge against rising natural gas prices when it signed a 20-year deal to buy electricity from a wood-burning power plant. If natural gas prices exceed $12/MMBtu, Austin Energy noted, the contract will lower a typical residential customer's electric bill by about $1.50 a month.
Similarly, Xcel CFO Ben Fowke called renewable energy ''a hedge against rising fuel costs'' in unveiling plans to nearly quadruple the Minnesota-based utility's investments in renewables while slashing natural gas-fired generation through 2020.
In some cases consumers are sharing in the benefits of hedging by signing up for green power. Xcel's Minnesota wind power customers, for example, are exempt from the utility's fuel cost adjustments; as a result, in July they actually paid less than those receiving power generated from conventional sources.
This mirrors the experiences of Xcel's green electricity subscribers in Colorado, who enjoyed a similar savings compared with fossil-fuel customers in 2005. Another US utility, Wisconsin Public Power Inc, locked in renewable energy resources at long-term, stable prices when it established its green power program in 2001, and as renewables generating costs have dropped, ''we're passing that savings along to consumers,'' WPPI executive Tom Paque said.
Renewable energy, of course, is subject to price swings in raw materials, such as wood pellets burned in combustors, steel used in wind turbine towers and metals processed to make copper-indium-gallium-selenium solar cells, coverage of which RER is initiating this issue. Yet these uncertainties are not deterring utility moves toward renewables, given the prospects or even likelihood of spikes in conventional fuel costs.
Renewable energy critics might rail against the intermittency of solar and wind power as well as their higher short-term costs compared with conventional fuels, but utility executives have no such luxury. They have businesses to run, and the smart ones are looking 10 to 20 years down the road to secure the interest of ratepayers and shareholders by hedging against volatile fuel prices with renewable resources.
www.getrenewableenergy.platts.com
For guidance regarding your posting please refer to the
Forum Guidelines.
