Solar energy production at the utility scale still needs anotherdecade or more to become competitive with relatively cheap gas producedby fracking, according to an analysis by Citigroup. Even as solarbecomes competitive, the US will need gas produced by fracking as areliable 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 dateat which large-scale solar energy production could compete withrelatively 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 backupof natural gas. In other words, fracking isn’t an impediment to movingtoward more renewable energy. It’s a necessary part of getting there overtime.
Gas Prices Will Rise and Solar Prices Will Fall
Atpresent, the boom in natural gas production in the United States thathas resulted from fracking has pushed prices to levels that everyoneagrees are economically unsustainable. Gas wells cost money, andproducers simply can’t make a profit selling at the current rate of lessthan $3/MMBtu (1,000,000 BTUs). The glut in the market means new production will slow until prices rise to an economically sustainable level.
Becausewidespread fracking is relatively new compared to the lifetime of awell (up to 35 years) and because the overhead associated withenvironmental regulations has yet to be determined, the break-even costof natural gas from isn’t precisely known. The Citi report estimates theit will have to rise to $4-6/MMBtu, but the authors note that otherestimates have been as high as $6-8/MMBtu; Zero Hedge publishedan even higher estimate of $8-9/MMBtu. The point is, naturalgas prices will rise gradually until drilling is profitable again. Thateventual 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 fairlypredictable because Citigroup actually uses two different methods toestimate the rate at which the price of solar will decline. The moreconservative estimate is called “single-speed” and the more optimisticestimate is “three-speed.” Again, the point is that the cost of large-scale solar is dropping gradually over time.
So with the cost ofnatural gas rising and the cost of solar dropping, one can envision thatat some point those two lines will cross. That’s the point at whichutility-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 morewrinkle that needs to be considered: insolation.
It is commonsense that different parts of the U.S. receive different amounts ofsunshine. The southwest (southern California and Arizona) get the most.The northeast gets comparatively far less. Here’s a map of insolation inthe U.S.:
The scale on this mapisn’t the same as the one used in the Citigroup report, but what youcan see is that available solar energy is not equally distributed in theU.S. That means the amount of energy that can be produced by a solarinstallation is perhaps double in Arizona compared to the sameinstallation in Maine. Simply put, the total cost of producing solarpower really depends on where your power station is going to bephysically located.
The Crossover Point
With allof that in mind, here is Citigroup’s chart estimating the point at whichutility scale solar will become competitive with natural gas generated from fracking:
Start with thex-axis, where the time scale is in years. The vertical line at 2012 marksthe point at which the Citi report was published. Everything to theright of that is an estimate. Now look at the far right edge and you’llsee 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 riseover time to at least $5 and possibly closer to $8. Finally, the coloredlines arcing downward across the chart represent the declining cost ofsolar power over time. The reason there are 7 of them is that theyrepresent 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 (1100kwH/kW/yr) is equivalent to the area of the U.S. farther to the east.
Soif all of these estimates are correct, solar production in thesouthwest could become competitive with $7/MMBtu gas around 2018, fiveyears from now. If we use the Citi estimate that long term natural gasprices will be closer to $5/MMBtu, then it would be closer to 2021 (justoff the chart) before solar can compete. And again, all of this is onlyfor the dark red areas in the insolation map above. Other areas of thecountry will have to wait much longer–perhaps 15-17 years–for regionalsolar power production to be competitive with natural gas.
Fracking Could Be the Key to Renewables’ Success
Someenvironmentalists are concerned that cheap natural gas has actually putoff the date at which renewable energy becomes a cost effective part ofour energy grid. There are also concerns that fracking is dirty,dangerous, etc. In fact, if you look at the Sierra Club’s website yousee that they are just as eager to end natural gas production by fracking as they are to end the production of coal and oil.
Butthe Citigroup report argues that this is impracticable in the near ormedium term. In fact, Citi argues that increased renewable energy willactually make power produced from natural gas more important, not less.This chart shows an estimate of how solar power production will likelywork when solar is a larger part of the grid:
Thedark blue bump represents the contribution of solar energy. The farleft graph represents a winter day. Notice that solar’s contribution islimited. However, the middle graph shows a sunny summer day. Suddenly wesee that solar can carry much of the peak load during certain hours. Infact, it’s crowding out other sources, something the Citi report callseven worse on a summer weekend. Because demand is less (people aren’t atwork) solar can now produce most of the power needed during the primedaylight hours. But another source needs to be ready to fill in as thesun sets or, presumably, if a rainstorm moves in over the solar powerfacility. And that backup source is probably going to be natural gasproduced by fracking. In fact, the two sources are “symbiotic,” accordingto the Citigroup report (page 37):
In the very muchlonger term, we expect that ‘peaking’ power will eventually be suppliedthrough renewable sources, through large-scale integrated storage, forinstance, or through a continent-wide smart grid. In the medium term,however, ‘peaking’ power can only realistically be satisfied bygas-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’ risesas renewable penetration increases, gas-fired power is not onlycompatible with renewables, it is in many ways essential for itslarge-scale adoption. This makes the relationship between renewables andgas-fired power symbiotic; they each assist the other to gain a larger slice of the electricity market.
IfCitigroup is right about this, groups like the Sierra Club (and JoshFox’s celebrity anti-fracking troupe) may be making the perfectthe enemy of the good. Cheap solar power is a wonderful idea, but we’renot quite there yet. And even once we are in 5-15 years, we still won’t have aglobal 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 gasproduced by fracking as the medium to long-term companion to renewableenergy, helping to bring us closer to U.S. energyindependence.