Fracking Could Be Key to Renewable Energy's Future

Solar energy production at the utility scale still needs another decade or more to become competitive with relatively cheap gas produced by fracking, according to an analysis by Citigroup. Even as solar becomes competitive, the US will need gas produced by fracking as a reliable backup when renewable power isn't available.

Writer David Roberts at Grist, a site focused on energy issues, recently highlighted an analysis of energy trends produced by Citigroup. The Citi report (pdf) is interesting for a couple reasons. First, it estimates the date at which large-scale solar energy production could compete with relatively cheap natural gas produced by fracking. Second, the report suggests that even after that point, the success of renewable energy will depend on the reliable backup of natural gas. In other words, fracking isn't an impediment to moving toward more renewable energy. It's a necessary part of getting there over time.

Gas Prices Will Rise and Solar Prices Will Fall

At present, the boom in natural gas production in the United States that has resulted from fracking has pushed prices to levels that everyone agrees are economically unsustainable. Gas wells cost money, and producers simply can't make a profit selling at the current rate of less than $3/MMBtu (1,000,000 BTUs). The glut in the market means new production will slow until prices rise to an economically sustainable level.

Because widespread fracking is relatively new compared to the lifetime of a well (up to 35 years) and because the overhead associated with environmental regulations has yet to be determined, the break-even cost of natural gas from isn't precisely known. The Citi report estimates the it will have to rise to $4-6/MMBtu, but the authors note that other estimates have been as high as $6-8/MMBtu; Zero Hedge published an even higher estimate of $8-9/MMBtu. The point is, natural gas prices will rise gradually until drilling is profitable again. That eventual price could be double or triple current prices.

Meanwhile, the break-even cost of solar installations continues to drop at a fairly predictable level. I say fairly predictable because Citigroup actually uses two different methods to estimate the rate at which the price of solar will decline. The more conservative estimate is called "single-speed" and the more optimistic estimate is "three-speed." Again, the point is that the cost of large-scale solar is dropping gradually over time.

So with the cost of natural gas rising and the cost of solar dropping, one can envision that at some point those two lines will cross. That's the point at which utility-scale solar becomes competitive with gas produced by fracking. We'll get to a chart of that in a moment, but first there's one more wrinkle that needs to be considered: insolation.

It is common sense that different parts of the U.S. receive different amounts of sunshine. The southwest (southern California and Arizona) get the most. The northeast gets comparatively far less. Here's a map of insolation in the U.S.:

The scale on this map isn't the same as the one used in the Citigroup report, but what you can see is that available solar energy is not equally distributed in the U.S. That means the amount of energy that can be produced by a solar installation is perhaps double in Arizona compared to the same installation in Maine. Simply put, the total cost of producing solar power really depends on where your power station is going to be physically located.

The Crossover Point

With all of that in mind, here is Citigroup's chart estimating the point at which utility scale solar will become competitive with natural gas generated from fracking:

Start with the x-axis, where the time scale is in years. The vertical line at 2012 marks the point at which the Citi report was published. Everything to the right of that is an estimate. Now look at the far right edge and you'll see possible natural gas prices from a low of $3/MMBtu up to $19/MMBtu. As discussed, prices are currently below $3 but are expected to rise over time to at least $5 and possibly closer to $8. Finally, the colored lines arcing downward across the chart represent the declining cost of solar power over time. The reason there are 7 of them is that they represent different levels of insolation. The aqua-colored line 2nd from the bottom (1900 kwH/kW/yr) is equivalent to the US southwest. The gray line higher up (1100 kwH/kW/yr) is equivalent to the area of the U.S. farther to the east.

So if all of these estimates are correct, solar production in the southwest could become competitive with $7/MMBtu gas around 2018, five years from now. If we use the Citi estimate that long term natural gas prices will be closer to $5/MMBtu, then it would be closer to 2021 (just off the chart) before solar can compete. And again, all of this is only for the dark red areas in the insolation map above. Other areas of the country will have to wait much longer—perhaps 15-17 years—for regional solar power production to be competitive with natural gas.

Fracking Could Be the Key to Renewables' Success

Some environmentalists are concerned that cheap natural gas has actually put off the date at which renewable energy becomes a cost effective part of our energy grid. There are also concerns that fracking is dirty, dangerous, etc. In fact, if you look at the Sierra Club's website you see that they are just as eager to end natural gas production by fracking as they are to end the production of coal and oil.

But the Citigroup report argues that this is impracticable in the near or medium term. In fact, Citi argues that increased renewable energy will actually make power produced from natural gas more important, not less. This chart shows an estimate of how solar power production will likely work when solar is a larger part of the grid:

The dark blue bump represents the contribution of solar energy. The far left graph represents a winter day. Notice that solar's contribution is limited. However, the middle graph shows a sunny summer day. Suddenly we see that solar can carry much of the peak load during certain hours. In fact, it's crowding out other sources, something the Citi report calls "inverting." Finally in the third chart on the right, the inverting is even worse on a summer weekend. Because demand is less (people aren't at work) solar can now produce most of the power needed during the prime daylight hours. But another source needs to be ready to fill in as the sun sets or, presumably, if a rainstorm moves in over the solar power facility. And that backup source is probably going to be natural gas produced by fracking. In fact, the two sources are "symbiotic," according to the Citigroup report (page 37):

In the very much longer term, we 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. In the medium term, however, ‘peaking’ power can only realistically be satisfied by gas-fired power, as it is the only source of large-scale non-intermittent ‘peaking’ power.

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. 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.

If Citigroup is right about this, groups like the Sierra Club (and Josh Fox's celebrity anti-fracking troupe) may be making the perfect the enemy of the good. Cheap solar power is a wonderful idea, but we're not quite there yet. And even once we are in 5-15 years, we still won't have a global power grid or a method of storing unused power for non-peak hours. The logical step at this point in time is to embrace natural gas produced by fracking as the medium to long-term companion to renewable energy, helping to bring us closer to U.S. energy independence.


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