By Jessica Hovick 9/20/13
Earlier this week at the REFF West conference, I attended the “Balancing act between natural gas and renewables” panel. Surprisingly the panel focused very little on the worries that cheap natural gas would derail the renewables market, but instead explored the synergies available between the two.
During introductions, Doug Arent, the Director of the Joint Institute for Strategic Energy Analysis at NREL, discussed the complementary nature of natural gas and renewables from risk, technology and geographic perspectives. Steven Corneli, the Senior VP of Sustainability at NRG Energy Inc discussed how distributed energy production, saturated energy supply, and plummeting renewable costs would all shape the role natural gas took in the power market. John Foster, CFO of LS9 a biofuels manufacture, argued that natural gas disruption would be limited because increasing global demand would drive up prices. Timothy Vail CEO and founder of GSX argued the exact opposite. He claims that the size of available reserves and continued innovations upstream will keep natural prices cheap. As a result it is key to innovate within the space, as his company is doing, converting natural gas into drop in gasoline.
As the discussion progressed several interesting points were raised:
- Steve observed that as natural gas, renewables and distributed energy come to dominate the power market rate based energy prices will have to change.
- Doug noted that one of the challenges preventing natural gas and renewable synergies was the misalignment between the gas market and the power market. As more renewables generate power natural gas will have to learn how to move away from long term fixed contracts to more rapid and flexible supply.
- Tim brought perspective on the scale required for many gas-to-liquid plants but how his company’s methanol-to-liquid technology provided the kind of margins that made traditional financing mechanisms possible.
- John discussed how pilot sized biofuel production plants were easier to fund but provided the same proof of concept benefits as full-scale facilities.
The panel ended with a discussion on future innovations and the policy needs of the industry:
- Doug believed that there was significant potential for innovation in technology interfaces and system integration. However policies guaranteeing an even playing field are necessary if new technologies are to succeed
- Steve discussed the need for innovation in utility cost structures and increased sophistication in managing energy on the grid as generation becomes more distributed. In order to cope with excess energy supply, policies need to focus on bringing older power generation plants offline and replacing them with renewables. As he put it, a Portfolio Renewal Standard instead of a Renewable Portfolio Standard.
- Jon believes cellulosic ethanol will be a huge game changer, but policy shouldn’t forget to support the potential of bio-chemicals in addition to biofuels.
- Tim sees room for innovation in both the upstream and downstream natural gas markets. However the industry needs uniform rules and policies across all states to make fracking and drilling safe and clean.
Overall the panel served as a sufficient reminder that the boom in US produced natural gas is not the death knell for renewable investment.
Jessica Hovick is a first year MBA candidate at the Haas School of Business at UC Berkeley. Before coming to Haas, Jessica worked for a consulting firm in Washington DC helping Federal clients with an array of issues including energy efficiency investment strategy, smart grid implementation and IT strategy.