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Biomass citigroup energy study

Published on March 30th, 2013 | by Giles Parkinson

19

Shale Gas Won’t Kill Solar & Wind, Renewable Growth Unstoppable (Citigroup Study)

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March 30th, 2013 by
 
Reposted from RenewEconomy:

The emergence of the shale gas boom in the United States, and the discovery of significant reserves in Australia and elsewhere, has prompted many people in the energy industry to proclaim a “golden age” of gas, one that will cause the premature demise of renewable energy sources, even before they have a chance of creating an energy revolution of their own.

The claims have, of course, been heavily promoted by the gas industry itself, as well as from institutions such as the International Energy Agency and the US Energy Information Administration, who have both suggested the boom in shale gas will defer investment away from wind and solar.

But in a recent report, the energy analysts at international investment bank Citigroup question these assumptions, which are based on the idea that gas and renewables will compete with each other. “We suggest the opposite is true,” Citi writes.

Rather than replacing renewables, the Citi analysts suggest that the shale gas industry will actually be dependent on the broader deployment of wind and solar for its future. That’s because gas will be priced out of the conventional market in the short term, but will then be required to fill in the gaps as wind and solar are deployed more widely, and coal generation is shut down.

Far from competing with each other, Citi suggests renewables and shale gas will be co-dependent as the world’s energy systems are weaned away from the baseload model that has dominated the industry for the last century. That is until forms of dispatchable renewable energy, such as solar thermal with storage, and technologies such as smart grids, push gas out of the market.

The key to Citi’s prediction is the conclusion that the cost of exploiting shale gas is highly uncertain, as are its long-term environmental credentials. Shale gas is likely to be considerably more expensive than it has been in the US, and by the time it is exploited it will be unable to compete with the cost of renewables in most markets.

“The perception of renewables as an expensive source of electricity is largely obsolete, given the huge cost reductions achieved in recent years,” the Citi analysts write. The report notes residential solar PV has already reached ‘grid parity’ in many countries, with much of the world set to follow by 2020.

It also says that utility-scale renewables will also be competitive with gas-fired power in the “short to medium” term. This has already occurred with wind energy in many countries. The exact ‘crossover’ points for utility-scale solar will vary from country to country, but in many regions, the Citi analysts say that big solar will be competitive by 2020.

In areas such as Saudi Arabia, it suggests, utility-scale solar is already cheaper than gas at a price of $15/MMBtu. Even at a price of $8MMBtu, solar will be cheaper than gas by 2020.

“Utility-scale solar is rapidly approaching parity with wholesale electricity prices in a number of countries, including Italy, Spain, the US and China,” Citi says.

“By 2020, we calculate that utility-scale solar will be competitive with gas-fired power for a broad range of natural gas prices. ”Under the optimistic assumption that the gas price reaches around $16/MMBtu, utility-scale solar would be cheaper than gas-fired power in all key markets around the world, including the UK, Russia and Germany.”

Even in the US, utility-scale solar located in the south-west of the country would be competitive with gas-fired power at all gas prices over $6-8/MMBtu, depending on whether solar prices fall according to its ‘single-speed’ or ‘three-speed’ scenarios.

Wind is also cheaper than gas-fired power in the US at a natural gas price of  around $6/MMBtu, although it does depend on the capacity factor of the plant. This evaluation of the competitiveness of wind and solar in the world’s biggest electricity market is crucial, because while Citi says gas prices have been low in the US due to the shale price boom, they are unlikely to remain there – as much of the resource is uneconomic to extract at under $5/MMBtu, and some studies suggest the level to be in the $6-$8/MMBtu range.

citigroup energy study

The assessment by the Citi energy team is significant because it is one of a number of teams from leading investment banks that have recognised the fundamental changes that are taking place in the global energy market. And all these changes are being driven by the falling cost of solar and wind, as highlighted by the likes of UBSMacquarie Group and Deutsche Bank.

Citi notes that in the early stage of their deployment, renewables will actually require less peaking capacity provided by open cycle gas plants, a prediction that is borne out from experience in South Australia.

However, as renewable penetration grows, more peaking capacity is required as baseload generation is shut down. Those who noticed the Graph of the Day from Monday, which showed Germany’s generation profile last Sunday, may be fascinated to see Citi’s predictions of what happens when twice as much renewable generation is deployed.

baseload power out

Baseload power plants are built on the economics of being, well, baseload. And many of the business models are also based on reaping the cream from higher-priced peak power – the areas of dark blue now occupied by solar. In short, such a scenario – which, in Germany, is official government policy – signals the demise of baseload power.

This “inverting effect”, as Citi describes it, is essentially turning the market upside down, as predicted by the majority of high penetration renewables scenarios.

More flexible gas-fired plants – and perhaps some coal-fired plants that manage to adapt – will be required to fill in the gaps. Since, at large penetration levels, the requirement for ‘peaking power’ rises as renewable penetration increases, gas-fired power is not only compatible with renewables, it is in many ways essential for its large-scale adoption. Forget about baseload and peaking-load scenarios, the future will be in flexible and inflexible generation.

“This makes the relationship between renewables and gas-fired power symbiotic; they each assist the other to gain a larger slice of the electricity market,” the Citi analysts note.

But it won’t be a permanent relationship. Eventually, in the “very much longer term,” the Citi analysts expect that ‘peaking’ power will eventually be supplied through renewable sources, through large-scale integrated storage, for instance, or through a continent-wide smart grid.

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About the Author

is the founding editor of RenewEconomy.com.au, an Australian-based website that provides news and analysis on cleantech, carbon, and climate issues. Giles is based in Sydney and is watching the (slow, but quickening) transformation of Australia's energy grid with great interest.



  • Pingback: San Diego Loves Green – Citigroup Study suggests Renewable Growth Unstoppable

  • http://www.facebook.com/profile.php?id=1009991842 Ron Wagner
    • Bob_Wallace

      You are welcome to participate in discussion here, but would you please quit spamming your site?

  • http://twitter.com/djm12 Doug

    Shale gas is helping with one thing only – killing coal. After coal is dead and buried, the EPA will tighten up on fracking. The only reason they haven’t done this already is because this would keep the coal plants running. Renewables will be very competitive with natural gas after new regulations restricting Shale gas fracking are put in place. These regulations are inevitable as fracking is environmentally unsound

    • http://zacharyshahan.com/ Zachary Shahan

      Interesting perspective…

    • http://www.facebook.com/profile.php?id=1009991842 Ron Wagner

      How about killing diesel ( a known carcinogen) and gasoline which is much dirtier? https://docs.google.com/document/d/19Yf0MWpo91vrlu-mmJtjB1ERukjJo5W41oi4RZVQBug/edit

      • Bob_Wallace

        Diesel and gasoline are best killed by better EV batteries along with higher manufacturing volumes which should bring down vehicle prices.

        Moving from diesel/gasoline to natural gas is almost certainly an unnecessary step. And it might actually make it harder to get petroleum products off our streets. Introduce another supply such as natural gas and the price of oil might be lowered in order to maintain market share. We need as much spread as possible between EVs and ICEVs in order to drive the market.

  • Crama

    With CSP (concentrated solar power) we have the added byproduct and benefit of large scale production of distilled water for use in desert cities and desert agriculture, as well as the ability to run the steam turbines 24 hours by storing heat as molten salt. That, coupled to a high voltage DC trunk line installed around our nation (USA) will solve much of our electric power generation as well as the coming water shortages in our desert cities, all in as a sustainable way as possible. Check out http://www.desertec.org/

    • http://zacharyshahan.com/ Zachary Shahan

      I was at the world’s largest single-unit CSP plant recently, located in Abu Dhabi. They chose a dry-cooling power plant design even though it’s more expensive bcs… it was to be located in the middle of the desert. If you ain’t got water, you ain’t got water.

  • http://www.facebook.com/profile.php?id=1009991842 Ron Wagner

    I am a proponent of natural gas but have no problem with the above scenario as long as the best price to the customer is achieved. I like wind and solar, so long as they can compete on an even playing field. Hopefully the economics will improve. As it is now, the affordable solar panels are made in China though, and all we do is install and maintain them. Europe pays twice what we do for electricity. We need to use our natural gas as much as possible, while expanding and reducing costs of solar, wind, and related energy storage.

    The best storage idea I know of is producing hydrogen with excess power, and adding it to natural gas pipelines. Hopefully better batteries will be coming to.

    • http://soltesza.wordpress.com/ sola

      You mean producing methane (not hydrogen) and adding it to the natural gas pipelines. Hydrogen alone cannot be added to natural gas.

      Yes, that would be soon economical and there are already projects for this (the Volkswagen e-gas project).

      The synthetic gas cycle is especially appealing for countries which have big nat-gas storage facilities. My country, Hungary, has built huge storage facilities in recent years in order to counteract the possible supply outages resulting from the quarrelling between Russia and Ukrain.

      • http://www.facebook.com/profile.php?id=1009991842 Ron Wagner

        I am not a chemist or an engineer, but understand that hydrogen can be made from wind and solar power when there is excess. Rather than store it, for long, it could be fed into the natural gas stream. Of course if there is a better way to get it to market, or use it, that is best. Biomass is the best way , I know of, to make methane.

        • http://twitter.com/djm12 Doug

          We’re a long way off from having excess renewable energy production in any market, except maybe the big island of Hawaii. Economically, any “excess” would be better used for pumped water storage or reverse osmosis water purification than generating H2 from electrolysis, which is very inefficient.

  • http://netmetering.co.za/ David Lipschitz

    Interesting. They (Citigroup) say that (shale) gas will be used for Peaking Power because eventually we won’t need conventional base load, and we will need cheap peak load capacity. And they say there is a symbiotic relationship between Renewable Energy and Shale Gas!! Very long term they say that the gas will be replaced with large scale storage. Well we already have the ability for large scale storage in Concentrated Solar Plants. Why not leap right over the need for shale gas at all? So it seems like Citigroup are saying they will support Shale Gas at the right price.

    What is also interesting is that Michael Eckhart, who used to be the President of ACORE, the American Council on Renewable Energy, is now is now Managing Director and Global Head of Environmental Finance and Sustainability at Citigroup in New York City! I wonder how Mr Eckhart feels about Citi’s approach to Shale Gas?

    • http://profiles.google.com/ivor.oconnor Ivor O’Connor

      You mention concentrated solar plants. The most efficient I know of is solar thermal and that only works well over a 24 hour period. Then there is converting excess energy to methane which will last years but the process of creating and using it later is not great. I don’t think either will replace the energy needed by our country. However I’m not understanding what you so maybe a bit of clarification might teach me something…

      • http://netmetering.co.za/ David Lipschitz

        Hi Ivor. “only works”. In South Africa our peak electricity demand is from 7 to 10am and from 6 to 8pm. This because we don’t have natural gas pipelines, although many people cook and heat with gas (bottles).

        I don’t see why plants can’t be built to store energy during the day at off peak times and make it available at peak times. This could make CSP affordable as the price per Watt of our Diesel Power Gas Turbines is incredibly high.

    • http://zacharyshahan.com/ Zachary Shahan

      Personally, I don’t see them as being advocates, simply studying the market. Right now, CSP is too expensive to compete in the market in most places (as current pricing and incentives sit). I don’t know, but simply see them as studying the matter rather than advocating for natural gas. (& same with this article.)

      • http://netmetering.co.za/ David Lipschitz

        Hi Zachary. My research shows that CSP is on a par with Nuclear build in terms of build costs.

        • http://zacharyshahan.com/ Zachary Shahan

          Yeah, not surprised, nuclear is definitely priced out of the market.

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