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Wind Power as a Long-Term Natural Gas Hedge

By on March 19, 2013

As a hedge, wind may be the best friend natural gas has.

March 11, 2013

By Herman K. Trabish | Greentech Media

Commitment to wind by U.S. utilities leapt by 57 percent in 2012 and continues to grow.

The number of utilities that bought or owned wind projects grew from 42 in 2011 to 66 in 2012, according to the American Wind Energy Association AWEA) Q4 2012 report. More importantly, “the utilities that directly purchase or contract wind cover more than 36 million customers,” noted AWEA Chief Economist Elizabeth Salerno, equating to “one in every nine Americans.”

The reason for this increasing commitment to wind is that utilities realize it’s a good deal despite record low -- but always unpredictable -- natural gas prices.

“Short-term gas price risk can already be effectively hedged using conventional instruments like futures, options, and bilateral physical supply contracts,” noted Lawrence Berkeley National Lab (LBNL) researcher Mark Bolinger in the report Revisiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices. “It’s only when one tries to lock in prices over longer terms -- e.g., greater than five or ten years -- that these conventional hedging instruments come up short. It is over these longer-term durations where inherently stable-priced generation options like wind power hold a rather unique competitive advantage.”

Because wind and natural gas can support each other on the grid and can work together to support the best electricity prices for ratepayers, Bolinger concluded, “greater and more widespread recognition of wind’s portfolio value among other potential wind power purchasers could help the nation to move forward -- even in an era of low natural gas prices, and even if the PTC is eventually phased out -- with both gas-fired and renewable generation.”

Read the full article here.


Tags:  natural gas
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