Easing the Natural Gas Crisis: Reducing Natural Gas Prices through Increased Deployment of Renewable Energy and Energy Efficiency

Renewable energy and energy efficiency may be able to help reduce the current high cost of natural gas, according to a report by Lawrence Berkeley National Laboratory (LBNL). With the recent run-up in natural gas prices, deepening concerns about the ability of North American gas production to keep up with demand, and the continuing reliance on natural gas as a favored fuel for electricity generation, a growing number of voices are calling for increased diversification of energy supplies.

“Our report shows that renewable energy and energy efficiency can displace gas-fired electricity generation, reducing gas demand and putting downward pressure on natural gas prices and bills,” said report co-author Ryan Wiser of LBNL.

The report’s findings are based on a review and analysis of recent modeling studies that have evaluated the gas-price-reduction effect of renewable energy and energy efficiency deployment.  “The 13 studies and 20 specific analyses that we review consistently show that increased use of renewable energy and energy efficiency can begin to reduce natural gas prices,” added co-author Mark Bolinger.  “Our study is the first to demonstrate that these results are broadly consistent with economic theory, results from other national energy models, and limited empirical evidence.”  

While variations in the magnitude of the price suppression are significant among the studies, and more research on this effect is warranted, the studies generally show that each 1% reduction in natural gas demand nationwide is likely to lead to a long-term wellhead price reduction of 0.8% to 2%, with some studies showing even more significant reductions.  “This means that increased use of renewable energy benefits natural gas consumers at a level conservatively estimated to be equivalent to at least $10 to $20 for each megawatt-hour of incremental renewable generation,” noted Bolinger.

The report also develops and demonstrates the use of an analysis tool that can be used to evaluate the potential impact of renewable energy and energy efficiency on natural gas prices and bills across all sectors of the economy.  “Based on our analysis, we find that the 18 existing state renewable portfolio standards (RPS) in the U.S. could provide natural gas bill savings of $7 to $18 billion on a net-present-value basis, while the California RPS alone could deliver national consumer savings of $3 to $9 billion,” said Wiser.

The study also evaluates the potential impacts of New England and New York RPS policies; state renewable energy fund support for renewable projects; projections by AWEA and the Solar Energy Industries Association of wind and solar power deployment, respectively; California’s aggressive natural gas efficiency goals; and two possible national efficiency standards for residential boilers and furnaces.

“Overall, our study suggests that renewable energy and energy efficiency can help to alleviate the threat of high natural gas prices over the short and long term, thereby lowering gas and electricity bills for consumers,” concluded Wiser.  

Please click here to read the report.