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Gas Prices Shape Renewable Mix, Utility Execs Say

The price level wholesale natural gas settles into could have an impact on the mix of renewable-based electric generation developed in the future, a panel of utility industry top executives said last Tuesday at the Bank of America Merrill Lynch Power & Gas Leaders Conference in New York City. Wind can be the most price-competitive, and solar is the most costly right now, the executives said.

"It really boils down to where do you want to put the price of natural gas," said Dick Kelly, CEO at Minneapolis-based Xcel Energy. "If you assume gas is going to be $5 to $6, wind does OK. With the production tax credit, wind is also in the hunt; solar is nowhere near."

When the comparisons move off the cost of gas, wind is not very competitive, Kelly said. If gas costs stay low as many people predict, then wind loses its competitiveness, he said. With the lower gas prices, both solar and biomass "have a tough time competing."

Peter Darbee, CEO at San Francisco-based Pacific Gas and Electric Co., said the situation in California is a little different, stressing that in his state most of the robust wind supplies occur in nonpeak demand times --overnight or early evening.

"That would be useful potentially for electric cars, particularly when you combine that with smart meters," Darbee said. "Wind is clearly the least-cost technology for us, but in California we have a natural air conditioning system, so when the winds blow off the Pacific Ocean, we don't need a heck of a lot of air conditioning. When the wind stops, however, it gets very hot, particularly in the inland valleys.

"Solar then is attractive in this situation because it is coincident with when we need the power [at the hottest times of the day]. Wind is very good, but you really need to think about when it is available and what are the costs of backing up the intermittency."

He said PG&E was looking at alternatives of using pumped storage or compressed air systems to back up the wind when it is not blowing, recognizing that makes the power produced ultimately more expensive.

Noting that generally the renewable-generated power is not price-competitive, Darbee said what he would like to see is a lot of technology advances -- overseas, perhaps in China -- that would drive down solar costs substantially, and that is what is needed eventually to make it competitive.

Wisconsin Energy CFO Allen Leverett said his utility views the renewables about the same as Xcel and it has determined that energy efficiency is cheaper than all the alternatives, so the utility is pushing state policymakers to put more emphasis on energy saving programs. Darbee said PG&E estimates the cost of energy efficiency at about 4 cents/kWh.

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