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Published on January 16th, 2015 | by Giles Parkinson

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This Graph Dispells The Myth That Cheap Gas Means Cheap Energy

January 16th, 2015 by  


Originally published on RenewEconomy.

The conservative press – the Murdoch media in particular – has hallelujahed the fall in gas prices as a great gift to the people, in the form of cheaper electricity.

Except, this hasn’t happened.

As this graph from Deutsche Bank shows, while natural gas prices in the US have fallen 88 per cent since 2008 – from a peak of $13/mmb to as low as $US2/mmb – consumer electricity prices have actually gone the other way – rising 20 per cent. liver the same period.

deutsche-natgas-vs-bills-590x384This graph above highlights the issue. Electricity prices are more seasonal in the US – hence the ups and downs – and are an average over the country.

The graph was published by Deutsche Bank in response to speculation that the plunging oil price – and with it the falling price of natural gas – could undermine the transition to renewables in the electricity grid.

But like its conclusions about oil – that it cannot compete with solar even at $50 a barrel and its fall with will have a minimal impact on solar, Deutsche Bank notes that the fall in the price of shale gas will also have a minimum impact.

That’s because transmission and distribution make up nearly half of the average electricity bill in the US, and investment in the grid has risen four fold in recent years, and those costs past on to consumers.

“We expect that even in a scenario where fuel costs are maintained at low levels, cost recovery for hard assets (Transmission, distribution, and generation facilities) will cause consumer rates to increase over time,” the investment bank analysts write.  “At most, prolonged low fuel costs could cause overall rates to increase less quickly or fluctuate between regions of the US.”

And this means that rooftop solar, whose costs are falling, becomes more interesting. Solar is benefitting from low interest rates, improving financing environment, and rising retail rates. Commercial solar PPAs (power purchase agreements) are  being signed in the 8-9c/kWh range and Deutsche Bank analysts say they do not expect low nat gas prices to have any adverse impact on this segment.

Reprinted with permission. 
 





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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.



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