The Outlook for Renewables in a Changing Power and Natural ... · and Natural Gas Market Louisiana Biofuels and Bioprocessing Summit September 11-12, 2012 ... Alaska Coalbed methane

David E. Dismukes, Ph.D.Center for Energy StudiesLouisiana State University

The Outlook for Renewables in a Changing Power and Natural Gas Market

Louisiana Biofuels and Bioprocessing Summit

September 11-12, 2012

Center for Energy Studies

Summary/Take-Away Points


• New natural gas supply availability is having considerable impacts on all energy markets today and on longer term, forward-looking basis.

• Given the prevalence of natural gas at the margin, this impacts not just retail gas usage, but also power, renewables and environmental valuations.

• Lower gas commodity will also drive down gas as a share of total bill and start to move base rate/commodity cost relationships to longer-run averages could have impacts on longer term electricity demand (and RPS requirements).

• Gas market changes will impact avoided costs (future looking costs) and have implications for cost-effective energy efficiency and renewable energy requirements.

2© LSU Center for Energy Studies

Summary

Marginal Costs/Avoided Costs


Marginal cost – the change in total cost resulting from an extremely small change in output. Typically thought of in the short run, although long run marginal costs can be important for planning purposes.

Avoided costs – the real world estimate of long run marginal costs where all factors of production (or inputs such as capital/capacity and other variable costs) are variable.

Important in long run resource planning evaluation as well as evaluation of renewable energy resources and energy efficiency measures.


Summary

Avoided Cost Estimation


Avoided cost estimates are often a function of:

1. Future energy costs (fuel/natural gas driven)

2. Future capacity costs3. Future natural gas commodity costs (LDC)4. Future environmental costs5. Future renewable costs6. Zero dispatch benefits (use/application

varies by state)


Summary


Energy/Natural Gas Prices


Energy & Gas Prices

$/M

cf

Source: Energy Information Administration, U.S. Department of Energy.

Natural Gas Price Variability


$0

$2

$4

$6

$8

$10

$12

$14

$16

$18

$20

Jan-97 Jan-99 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11

average for period2000-2001 heating season

through 2008: $6.25(standard deviation: $2.40)

since 2009: $3.81(standard deviation: $0.90)


The 2001 to 2009 market trend of higher average prices coupled with high volatility is reversing itself and post 2009 prices are significantly lower.

Average 1997through 2000: $2.89(standard deviation: $1.46)

Energy & Gas Prices

Per

cent

of T

otal

(%)

Source: Energy Information Administration, U.S. Department of Energy

Estimated Gas and Non-Gas Costs in U.S. Distribution Rates


0%

10%

20%

30%

40%

50%

60%

70%

80%

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

Fuel

Non-Fuel


The commodity share of total bills are closer to percentages observed in the 1990s rather than the early 2000s. May start to move demand trends

back to historic norms.

Energy & Gas Prices

Domestic Shale Gas Basins and Plays



Unlike conventional resources, shale plays (natural gas, liquids, and crudes) are

located almost ubiquitously

throughout the U.S. and are the primary

reason for the decrease in overall and

regional natural gas

prices.Source: Energy Information Administration, U.S. Department of Energy

Energy & Gas Prices

Dry

Nat

ural

Gas

Pro

ved

Res

erve

s (T

cf)


Natural Gas Proved Reserves and Production


-

5

10

15

20

25

30

0

50

100

150

200

250

300

350

1970 1975 1980 1985 1990 1995 2000 2005 2010

Reserves

Production

Marketed P

roduction (Tcf)


Current U.S. natural gas reserves are approaching record levels not seen since 1970. Natural gas production is at levels that surpass historic peaks.

Energy & Gas Prices

Impo

rts -

Bcf


Natural Gas Imports

Center for Energy StudiesP

ercent of Total U.S

. Supply -%

0%

5%

10%

15%

20%

25%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

4,000

4,500

5,000

1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010

LNG Imports Pipeline Imports Imports as a Percent of Total Supply


Natural gas imports, once thought the be the supply remedy for meeting future gas needs are falling to levels also not seen since the 1990s.

Energy & Gas Prices

Res

erve

s -T

cf


Annual Energy Outlook, Natural Gas Reserves


200

220

240

260

280

300

320

2010 2015 2020 2025 2030 2035


Unconventional resources are not a “flash in the pan” and are anticipated to continue to increase over the next two decades or more.

Energy & Gas Prices

Basin Competition


Source: MIT Energy Initiative. 12

China1,275 Tcf

Australia396 Tcf

South Africa485 Tcf

Argentina774 Tcf

Brazil226 Tcf

Mexico681 Tcf

Canada388 Tcf

U.S. 862 Tcf

France180 Tcf

Poland187 Tcf

Algeria231 Tcf

Libya290 Tcf

Close to 6,000 TCF of shale gas opportunities around the world. Coupled with 9,000 Tcf in conventional suggest a potentially solid resource base for many decades.

© LSU Center for Energy Studies

Energy & Gas Prices


Forecast U.S. natural gas production, 1990-2035

13

0

5

10

15

20

25

30

1990 1995 2000 2005 2010 2015 2020 2025 2030 2035

Shale gas Tight gas Non-associated offshoreAlaska Coalbed methane Associated with oilNon-associated onshore

Tcf

Shale availability will drive U.S. natural gas supply.

Shale Gas Production

Assc. Gas Production


Energy & Gas Prices



Can you insert a slide that shows a

14

Energy & Gas Prices

Annual Production, Unconventional Resources


15

Bcf

/dM

MB

Bl/d

Source: Advanced Resource Intl; presentation to Cheniere Board, March 2011; Cheniere Research

0

1

2

3

4

5

6

7

8

2010 2011E 2012E 2013E 2014E 2015E 2020E0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0Includes Eagle Ford, W. Barnett, Bakken Shales;

Granite Wash, Piceance & Uinta Tight Sands

LiquidsGas

Liquids production from shale plays > 3 million barrels per day by 2020 Associated natural gas > 7 Bcf/d of “costless” supply (or about 2.3 Bcf/d

per every 1.0 MMBbls/d of shale-based liquids production).


Energy & Gas Prices

(201

0 $/

MM

BTU

)


Choosing Most Current Natural Gas Price Forecasts: AEO-2007 to AEO-2012


0

2

4

6

8

10

12

14

16

1997 2002 2007 2012 2017 2022 2027 2032

Actual Henry Hub AEO-2007 AEO-2008 AEO-2009AEO-2010 AEO-2011 AEO-2012


Shale availability has significant impact on future price outlook.

Anticipated price outlook in 2009.

Anticipated price outlook today.

Energy & Gas Prices


Renewable Energy Markets


Renewable Energy Prices


RPS States

ME40% by 2017

VT:20% by 2017

NH: 24.8%by 2025

WI: 10%by 2015

MT: 15%by 2015

IA: 105 MW

MN: 25%by 2025

WA: 15%by 2020

CA: 33%by 2020

NV: 25%by 2025

AZ: 15%by 2025

NM: 20%by 2020

UT: 20%by 2025

TX: 5,880 MWby 2015

MO:15%

by 2021

IL: 25%by 2025

NC: 12.5% by 2021

VA: 15%by 2025

PA: 18%by 2020

NY: 29% by 2015

State RPS

State Goal

OR: 25%by 2025

CO: 30%by 2020

ND: 10%by 2015

SD: 10%by 2015

OH: 12.5%by 2024

MA: 22% by 2020RI: 16% by 2020CT: 27% by 2020NJ: 20.4% by 2021MD: 20% by 2022DE: 25% by 2026DC: 20% by 2020

Note: As of June 2012Source: Database of State Incentives for Renewables and Efficiency.

MI: 10%+1,100 MW

by 2015

WV: 25% by 2025

OK: 15%by 2015

KS: 20%by 2020

IN:10% by2025

HI: 40%by 2030

Currently 37 states have RPS policies in place. Together these states account for over 72 percent of electricity sales in the U.S.




RPS Phase-In: Share of Total U.S. Retail Sales with RPS Requirements

Allowance“Allowances” are issued for

the allowed level of emissions.

DeficitRemaining credits needed

after allowances

Source: Energy Information Administration, U.S. Department of Energy. 19© LSU Center for Energy Studies

State RPS requirements have been increasing significantly since 2005 and the post-Hurricane Katrina volatility in energy prices.


0%

10%

20%

30%

40%

50%

60%

70%

80%

1998 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020

Katrina


Historic Wind Generation Capacity Development


Wind capacity development has been considerable. The last several years has seen considerable over-development and the industry current has about 4 GW of excess manufacturing capacity even if the federal wind PTC is continued. The federal 1603

option created considerable speculative activity.


0

5

10

15

20

25

30

35

40

45

50

0

2,000

4,000

6,000

8,000

10,000

12,000

1980 1985 1990 1995 2000 2005 2010

Installations Cumulative Capacity

Ann

ual C

apac

ity (M

W)C

umulative C

apacity (GW

)

Pre-PTC and RPS Post-PTC / Pre-RPS Post-PTC /Post-RPS*

Cost of Non-Solar Renewable Energy Credits


Class 1 RECs have also seen considerable price decreases although there has been some rebounding in the past year.

Source: Energy Efficiency & Renewable Energy Division, U.S. Department of Energy; Citing Spectron GroupAccessed at: http://apps3.eere.energy.gov/greenpower/markets/certificates.shtml?page=5 21© LSU Center for Energy Studies


REC Prices and Wind Development


REC prices in ERCOT have fallen considerably in large part due to the overdevelopment of wind capacity over the past several years. High

correlation between the increase in wind generation and decrease in REC prices.

$0

$1

$2

$3

$4

$5

$6

$7

0

500

1,000

1,500

2,000

2,500

3,000

Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12

Texas Wind Generation Average Monthly REC Price

Texa

s W

ind

Gen

erat

ion

(MW

h) Average RE

CPrice ($/M

Wh)



Source: PJM-GATS

Cost of Solar Renewable Energy Credits through PJM-GATS


$0

$100

$200

$300

$400

$500

$600

$700

Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 Apr-11 Jul-11 Oct-11 Jan-12 Apr-12

Delaware District of Columbia MarylandNew Jersey Ohio PennsylvaniaVirgina

$ pe

r Sol

ar-R

EC

Solar energy costs (SRECs) have decreased considerably over the past year, even in high priced states such as New Jersey.




Forecasted Gas and Wind Generation Capacity

0

20

40

60

80

100

120

140

2010 2015 2020 2025

Projected Wind Capacity Projected Gas Turbine Capacity Needed

Cap

acity

(GW

)

Note: Assumes the required gas turbine capacity for firming wind generation is 25.8 percent of the installed wind capacity and the average annual utilization of gas turbines for firming purposes is 15.6 percent. Source: ICF International. 24© LSU Center for Energy Studies

Projected wind capacity increases from just under 50 GW in 2010 to almost 130 GW in 2025; as does the gas turbine capacity needed for firming wind generation. Gas-fired capacity needed to support intermittent wind will grow from about 12 GW in 2010 to

more than 33 GW in 2025.



Conclusion


Conclusions


Conclusions

• The change in energy markets created by shale has been “revolutionary.”

• High crude oil prices are stimulating continued shale drilling. While this is primarily concentrated in liquids, current and forecasted associated gas requirements are considerable.

• While there will be continued risks associated with shale development, the “conventional wisdom” is that the resource will continue to be developed.

• To date, these gains will likely not have as considerable an impact on renewable energy as they will on energy efficiency.

• Since RPS requirements are typically based on generation requirements (demand), lower prices stimulating use could be positive for renewables.

• Biggest short run challenge for renewables is the wind overdevelopment that dampens Class 1 REC prices.

Conclusions



Questions, Comments and Discussion

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Documents

The Outlook for Renewables in a Changing Power and Natural ... · and Natural Gas Market Louisiana Biofuels and Bioprocessing Summit September 11-12, 2012 ... Alaska Coalbed methane