Hot Air About Cheap Natural Gas

When people compare the cost of gas-fired electricity and renewables, they usually don’t price fuel cost risks, and at this point that’s really just not intellectually honest.  Risk-adjusted price comparisons are very difficult because nobody will sell a 30 year fixed price gas supply contract, and that’s what you’d need to buy to actually know how much your gas-fired electricity will cost.  Even a 10 year futures contract doubles or triples the cost of gas.  You can’t buy renewables without their intrinsic fuel-price hedge, and that hedge is valuable.  The question shouldn’t be “Is wind the absolute cheapest option right now?” it should be “Given that wind will cost $60/MWh, are we willing to live with that energy cost in order not to have to worry about future price fluctuations?”  And I think the answer should clearly be yes, even before you start pricing carbon.

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