Published On: Wed, Apr 3rd, 2013

The Impact of Shale Gas on Renewables

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A new report by Citi Research suggests that shale gas will be a short lived phenomenon as solar power cost reductions will drive conventional power out of the market.

History Future Now wrote about the Ponzi-scheme nature of shale gas a few months ago in Shale Gas: cheap domestically produced natural gas or nothing but hot air? Ritesh Pothan wrote a good article in Natural Group called Age of renewables: Why shale gas won’t kill wind or solar in which he quotes a Citi paper about the impact of shale gas and renewable energy. Key quotes:

Rather than replacing renewables, the Citi analysts suggest that the shale gas industry will actually be dependent on the broader deployment of wind and solar for its future. That’s because gas will be priced out of the conventional market in the short term, but will then be required to fill in the gaps as wind and solar are deployed more widely, and coal generation is shut down.

Far from competing with each other, Citi suggests renewables and shale gas will be co-dependent as the world’s energy systems are weaned away from the baseload model that has dominated the industry for the last century. That is until forms of dispatchable renewable energy, such as solar thermal with storage, and technologies such as smart grids, push gas out of the market.

Lets read that last part again: That is until forms of dispatchable renewable energy, such as solar thermal with storage, and technologies such as smart grids, push gas out of the market. They continue:

The key to Citi’s prediction is the conclusion that the cost of exploiting shale gas is highly uncertain, as are its long-term environmental credentials. Shale gas is likely to be considerably more expensive than it has been in the US, and by the time it is exploited it will be unable to compete with the cost of renewables in most markets.

“The perception of renewables as an expensive source of electricity is largely obsolete, given the huge cost reductions achieved in recent years,” the Citi analysts write. The report notes residential solar PV has already reached ‘grid parity’ in many countries, with much of the world set to follow by 2020.

The Citi report goes on to say that:

“By 2020, we calculate that utility-scale solar will be competitive with gas-fired power for a broad range of natural gas prices. ”Under the optimistic assumption that the gas price reaches around $16/MMBtu, utility-scale solar would be cheaper than gas-fired power in all key markets around the world, including the UK, Russia and Germany.”

To highlight the point Citi has a nice graph:Solar vs gas


This ties in nicely with what History Future Now wrote about solar power a few months ago in Who are the losers in the energy revolution?:

Solar power is already having a significant impact on electricity generation and supply markets, despite having a relatively low overall market share. The problem for coal, gas and nuclear power is that solar is too cheap and they are increasingly unable to compete.

This raises a big problem for utilities that are contemplating new fossil fuel power stations to replace ageing coal and gas power stations: within a few years of start of operations they will be at a significant price disadvantage vs renewables.

Graph of the Day: Wind, solar provide half Germany’s energy output has a great chart highlighting how mainstream solar and wind are in Germany already:

This comes from Sunday (March 24) and shows that in the middle of the day, more than half of Germany’s electricity output came from wind and solar. Two things are striking – one is the amount of solar capacity produced on a day in early spring, with nearly 20GW at its peak. The second is the consistent contribution of wind energy, which accounted for more than 25 per cent of the overall output throughout the day.

Imagine, then, what will happen when Germany doubles the amount of wind and solar production, as it plans to do within the next decade. On days like this, there will simply be no room for fossil fuel production – the so-called “base load”. Any coal or gas fired generation that remains will need to be capable of being switched on and off on demand. The base load/peakload model will be turned on its head – to be replaced by dispatchable and non dispatchable generation. Fossil fuels will be required just to fill in the gaps.

Re graph: The yellow bit is solar production, the light green is wind, and the grey is “conventional” – which includes coal, gas and nuclear, as well as biomass and hydro.

German power


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About the Author

- Tristan Fischer is the author of all the articles on History Future Now. He is the Chairman of Lumicity Ltd, a company developing renewable energy infrastructure projects, Chairman of Fischer Farms Ltd, a vertical farming company using hydroponics, and a board Director of Fish From Ltd, an onshore salmon company. He previously worked for Camco International, Shell Renewables and Citigroup. He was educated at Cambridge University. If you liked this article and want to read more, the ebook edition of History Future Now, is now available from the Apple iBookstore!

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