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Falling Renewables, Storage Costs Poised to Take the Bite Out of the Natural Gas Boom

Max Pixel

A flurry of recent news reports all lead toward the mounting realization that new renewable energy systems are less expensive for power utilities to undertake than historically cheap natural gas plants.

The finding could have stunning implications for an industry that has been preparing for a boom, with fossil publications and analysts excitedly touting a new wave of liquefied natural gas (LNG) transport.

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The first competitive shock for gas producers comes in the form of plummeting costs for solar- and wind-generated electricity. The second is the more recent drop in the price of battery storage. There’s no single price for renewables + storage projects that applies across all regions. But the trend has taken hold, and cost reductions in both classes of technology are generally expected to continue.

Last week, Bloomberg published [2] a graph that showed the cost of solar with batteries at just US$36 per megawatt-hour in the southwestern United States, compared to $47 for combined-cycle gas plants. “This won’t be contained to the Southwest,” said Bloomberg New Energy Finance analyst Hugh Bromley. “This is spreading and will continue to spread.

Already, the price drop “positions solar to replace a significant portion of the seven gigawatts (GW) of coal-fired power that’s expected to retire in the region over the next decade,” Bloomberg News reports, citing Bromley. Now, the trend is expanding beyond coal.

“Utilities that buy electricity from solar farms typically still rely on gas-fired generators in the evenings. But the increasing affordability of batteries—thanks in part to a federal incentive –is making solar compelling, even after sundown [3].”

More and more news reports are also pointing to unsubsidized solar and wind coming in ahead of fossil energy on cost. That’s despite continuing, massive government subsidies for fossil energy, and without factoring in the social cost of carbon that is borne by households and communities around the world, whether or not it’s factored into a fossil project competing head to head against renewables.

The new reality, reports [4] PV Magazine, is that “conventional generation is in crisis in the United States. This started with coal plants, which have been under multiple market pressures. Between cheap gas from hydraulic fracturing bringing down wholesale power prices and the cost of complying with new emissions regulations, coal has simply been unable to compete with a massive build-out of new gas projects. And with U.S. electricity demand stagnating since the 2008 recession, generation has become a zero-sum game.”

And now, while the “vast majority” of U.S. solar and wind projects to date have been subsidized, both technologies “are now competing directly in the market, and their low prices have led to new market drivers, such as increasing corporate procurement of renewable energy,” the magazine notes. “Just as gas outcompeted coal, large-scale solar and wind are now outcompeting gas in the energy market, with contract prices as low as $30/MWh for solar and below $20/MWh for wind, and solar project bids as low as $22/MWh. Additionally, once solar or wind plants are built they will always out-bid any thermal energy source, which has to buy fuel in wholesale power markets, as renewables have near-zero marginal cost.”

Meanwhile, global solar capacity has grown from 15 to 400 GW in the last decade, according to the International Renewable Energy Agency, and most forecasts see it doubling again by the mid-2020s.

“In the long-term, this is a threat to gas suppliers whose demand from utilities will be in decline,” Bromley said.

A Reuters report picked up by the Cleveland-based Institute for Energy Economics and Financial Analysis goes a step farther, suggesting the gas industry may soon become an explicit target for renewable energy developers.

“The global gas industry, boosted by a host of new projects to feed booming demand, is in better shape than at any point in the last five years,” the news agency states [5]. “But analysts warn it is getting ahead of itself, pointing to the rise of renewable energy as a threat.”

The story cites projections that LNG demand will double in the years ahead, with Christian Brown, president for the oil and gas sector at Canada-based SNC Lavalin, asserting that “the industry is confident”. But Bernadette Cullinane, Australian Oil, Gas and LNG Leader at Deloitte Consulting, came back with a more cautious assessment.

“The oil and gas industry is undergoing major disruption from electrification and renewables,” she said. “LNG producers must lower costs to compete with solar plus storage,” and projects that can’t are likely to fail.

“Given how fast this disruption is occurring, we believe the oil and gas industry must act now,” she said.

Last week, Greentech Media published a series of charts pointing [6] to the “scale of the threat facing gas-based electricity generation from renewables and energy storage,” based on a Wood Mackenzie Power & Renewables presentation at a conference in Barcelona. The charts showed;