Accounting for fuel price risk when comparing renewable togas-fired generation: the role of forward natural gas prices

Journal Article · Sat Jul 17 04:00:00 EDT 2004 · Energy Policy

OSTI ID:886817

Bolinger, Mark; Wiser, Ryan; Golove, William

Unlike natural gas-fired generation, renewable generation (e.g., from wind, solar, and geothermal power) is largely immune to fuel price risk. If ratepayers are rational and value long-term price stability, then--contrary to common practice--any comparison of the levelized cost of renewable to gas-fired generation should be based on a hedged gas price input, rather than an uncertain gas price forecast. This paper compares natural gas prices that can be locked in through futures, swaps, and physical supply contracts to contemporaneous long-term forecasts of spot gas prices. We find that from 2000-2003, forward gas prices for terms of 2-10 years have been considerably higher than most contemporaneous long-term gas price forecasts. This difference is striking, and implies that comparisons between renewable and gas-fired generation based on these forecasts over this period have arguably yielded results that are biased in favor of gas-fired generation.

• Research Organization: Ernest Orlando Lawrence Berkeley NationalLaboratory, Berkeley, CA (US)
• Sponsoring Organization: USDOE. Assistant Secretary for Energy Efficiency andRenewable Energy. Policy and Management
• DOE Contract Number: AC02-05CH11231
• OSTI ID: 886817
• Report Number(s): LBNL--54751-Journal; BnR: EH0120060
• Journal Information: Energy Policy, Journal Name: Energy Policy Journal Issue: 6 Vol. 34; ISSN ENPYAC; ISSN 0301-4215
• Country of Publication: United States
• Language: English

Related Subjects

03 NATURAL GAS
17 WIND ENERGY
AVAILABILITY
NATURAL GAS
PRICES
STABILITY