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
Gas Prices Will Rise and Solar Prices Will Fall
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.
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 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
The Crossover Point
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.
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
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.
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:
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.
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.
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