Committed to the continued growth of wind energy
Wind & Natural Gas: A Mutually Beneficial Relationship

The Wind-Gas Story
For all but one year between 2005 and 2012, wind and natural gas have been the top two sources of new energy generation capacity in the United States. [1] While these two sectors can be seen as naturally competitive in seeking to fulfill new generation requirements, they have a unique opportunity to work together. As both wind and gas grow across the electricity markets, the mutual benefits of their relationship have become increasingly clear, leading to hope for more cooperation between the two sectors.

The Shale Gas Revolution
Natural gas has seen its growth aided by new production techniques, namely hydraulic fracturing, which is most often used in previously untapped shale gas formations. The resulting spike in U.S. natural gas production has led to record low natural gas prices, which plummeted from $9/MMBtu in 2005 to $2.75/MMBtu in 2012. [2] As production has risen nearly 30% per year since 2005 [3], utilities have boosted their usage of natural gas, driving up net electricity generation market share from 18.7% in 2005 to more than 30% in 2012. [4] While historically industrial consumption was the primary use for natural gas, the electric power sector surpassed industrial consumption in 2007. Natural gas is also used by residential consumers (for heating and cooking) and commercial consumers (for space heating, water heating, cooling, and cooking facilities), and many have predicted the growth of natural gas as a transportation fuel (although its growth in that sector has been small to date).

Figure 1. Primary Electric Power Consumptions by Source, 1949-2011 [5]

Figure 2. Natural Gas Energy Consumption by End Use, 1998-2012 [6]

Game-Changing Technology Gains in Wind
At the same time, wind energy has seen similarly impressive technological innovations. The installed capacity factor for wind increased from around 23% in 2001 to nearly 42% in 2012 in the United States, with projections suggesting wind will reach and remain at a 45% capacity factor by 2020. [7]

With this increase in capacity factor, wind energy has also seen its levelized cost of energy (LCOE) drop from $0.10/kWh in 2001 to $0.05/kWh in 2012. [8] The cost of wind nearly halved from $62/MWh in 1999 to a minimum of $37/MWh in 2005, but bounced back up to $54/MWh in 2011 due to increased material costs and a weakening U.S. dollar. [9] Between 2005 and 2008, wind was on average less expensive than the average nationwide wholesale power price range; but once natural gas prices fell to make it a low-cost electricity producer, wind prices have been slightly higher than wholesale power prices. The technology’s cost competitiveness has helped increase its net electricity production market share from 0.4% in 2005 to 3.5% in 2012. [10]

Figure 3. Cumulative Capacity-Weighted Average Wind Power Price, 1998-2011 [11]

Figure 4. U.S. Annual and Cumulative Installed Generation Capacity, 1999-2012 [12]

Wind & Gas: The Benefits of Working Together
As wind and natural gas both carve out larger shares of the electricity generation market, some observers see a zero-sum game between the two industries. However, a growing research sector has begun to explore the mutual benefits of the technologies. Gas generation provides the grid with a good firming resource that can ramp up quickly during periods of lower wind resource. Since natural gas has rapid ramping capability, it is a better option than other generation sources like coal or nuclear for firming power from variable resources such as wind. [13]

Simultaneously, wind provides the grid with a couple of benefits as it relates to natural gas power generation. Historically, natural gas has had highly volatile prices and over the long-term gas prices are expected to rise. Since wind energy has no fuel costs and small, predictable operations and maintenance costs, long-term contracts are possible that can act as both an ongoing volatility dampener and effective long-term price hedge. [14] In addition to its grid pricing benefits, wind energy also provides an effective method for offsetting the carbon and methane emissions and water usage of natural gas generation. [15]

Growing Interest in Wind-Gas Relationship
Given the opportunities surrounding wind and natural gas generation, the study of the relationship between wind and gas technologies has been an active area of study. Research has been performed by diverse organizations, including the California Public Utilities Commission, Xcel Energy, Interstate Natural Gas Association of America, National Renewable Energy Laboratory, Lawrence Berkeley National Laboratory, International Energy Agency, Federal Energy Regulatory Commission, Natural Resource Defense Council, and Carnegie Mellon University, among others. A collection of recent reports on the wind-gas relationship has been compiled by the Advanced Energy Economy Institute in a partnership with the Wind Energy Foundation and can be found here (PDF 994 KB).

More Information

Advanced Energy Economy Institute, Wind Energy Foundation. (June 2013). Wind-Gas Relationship Studies: Annotated Bibliography (PDF 994 KB)

Brattle Research Group. Partnering Natural Gas and Renewables in ERCOT (PDF 895 KB)

Dedrick, J.; Kraemer, K.; Linden, G. (March 25, 2014). Visualizing the Production Tax Credit for Wind Energy (PDF 264 KB)

Lawrence Berkeley National Laboratory. Revisiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices (PDF 255 KB)

National Renewable Energy Laboratory Joint Institute for Strategic Energy Analysis. Opportunities for Synergy Between Natural Gas and Renewable Energy in the Electric Power and Transportation Sectors (PDF 1.4 MB)

Footnotes

[1] U.S. Energy Information Administration. (July 5, 2011). Most Electric Generating Capacity Additions in the Last Decade Were Natural Gas-Fired

[2] The World Bank. Commodity Markets Pricing

[3] U.S. Energy Information Administration. (June 28, 2013). U.S. Natural Gas Gross Withdrawals

[4] U.S. Energy Information Administration. (June 21, 2013). Net Generation by Energy Source: Total (All Sectors), 2003-April 2013

[5] U.S. Energy Information Administration

[6] U.S. Energy Information Administration

[7] OpenEnergyInfo. Transparent Cost Database

[8] OpenEnergyInfo. Transparent Cost Database

[9] U.S. Department of Energy. (August 2012). 2011 Wind Technologies Market Report (PDF 2.7 MB)

[10] U.S. Energy Information Administration. (June 21, 2013). Net Generation by Energy Source: Total (All Sectors), 2003-April 2013, Net Generation by Other Renewable Sources: Total (All Sectors), 2003-April 2013

[11] U.S. Department of Energy. (August 2012). 2011 Wind Technologies Market Report (PDF 2.7 MB)

[12] U.S. Energy Information Administration

[13] Interstate Natural Gas Association of America. Firming Renewable Electric Power Generators: Opportunities and Challenges for Natural Gas Pipelines

[14] Bolinger, Mark. Revisiting the Long-Term Hedge Value of Wind Power in an Era of Low Natural Gas Prices. Lawrence Berkeley National Laboratory

[15] Natural Resources Defense Council. The Role of Natural Gas in America’s Energy Mix (PDF 325 KB)