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Renewable Energy & Cleantech

Wind Outpaces Natural Gas Even In Falling Price Environment

Author: Jenna Bieller received a dual degree from CU Boulder in Environmental Studies and Business Administration.

Momentum behind the 2015 clean energy movement in the U.S. led to a dramatic reversal in installed energy capacity. Historically, new fossil fuels have dominated wind additions to the grid, but last year the tides were turned. As a result of a combination of factors, wind energy capacity brought online in 2015 soared above 8,000 MW while natural gas installations hovered around 6,000 MW. This shift is not only an important market indicator for those in the energy industry, but should serve as a signal to corporations and governments that the renewable energy transition is now fueled by the inertia of good economics.

The discerning investor should be excited: renewable energy is a symbolic pool of opportunity into which industry-leading organizations are diving head first. Innovative companies like Google and Amazon have scooped up thousands of megawatts of wind energy via Power Purchase Agreement (PPA). In fact, non-utility buyers made up 52% of wind power contracted through PPAs last year. Assuming current market conditions hold true, this pool of opportunity is not predicted to dry up anytime soon.

How is this massive push for renewable energy able to occur simultaneously with some of the lowest gas prices in history?

Several variables contribute to the fact that wind outpaces natural gas, even with low gas prices, including favorable public policy and the injection of new sources of demand into the market. There are also other related market factors, like public outcry for cleaner electricity and the evolution of energy storage, helping to pave the way for renewable energy and explain how wind outpaces natural gas.

Energy market experts are saying that renewables are here to stay. Thanks in part to the extension of the Production Tax Credit, wind energy prices have dropped 40% since 2008, and are projected to continue falling as technology improves. Extension of renewable energy subsidies has leveled the playing field for wind to maintain pace of growth, with 75 GW slated to come online in the next decade. This long-awaited policy stability had served as the go-ahead for wind developers to initiate new projects, full-steam ahead.

The diversified market for renewables is also driving growth. The entrance of corporate buyers to the market has spurred a synergistic effect between supply and demand for renewable energy. On one hand, project developers are in need of creditworthy off-takers, in order to get their energy facilities off the ground and begin to reap the tax benefits as soon as possible. Likewise, public pressure to attain sustainability targets and attractive economics have enticed the private sector to explore new ways of energy procurement, such as PPAs.

This fortuitous timing of supply and demand has created an environment in which even extremely low gas prices are highly unlikely to hamper the advancement of renewable technologies. Via PPAs, developers and corporate off-takers have struck a balance where the contracted price for energy is high enough to finance new renewables getting to the grid, but low-enough to allow corporate buyers to feel comfortable with their long-term purchase. The outcome of this partnership between business and clean energy is expected to propel wind energy from less than 7% of U.S. capacity today up to 35% by 2050.

All factors combined, the acceleration of corporate renewable energy appears to be more than a fleeting trend, but rather a worthy technology that will drive value for buyers for years to come.