Low wholesale power prices and an uncertain future for federal power regulations have made it trickier—and riskier—than ever for utilities and independent power producers to plan for and invest in generation.
Using Probability of Exceedance to Compare the Resource Risk of Renewable and Gas-Fired Generation seeks to simplify decision-making with clear, cold numbers. The new Lawrence Berkeley National Laboratory (LBNL) study offers a new way to compare the resources, showing that renewables are an economic and reliable choice.
Resource risk can be very difficult to mitigate for long-term investments in power plants, and it manifests differently for renewable and natural gas-fired generation. For renewables, the risk is “the quantity of wind and insolation will be less than expected.” For natural gas, the risk is “natural gas will cost more than expected.”
Statisticians label the mid-range case “P50,” but calculate a probability for all possibilities from P1 to P99. Probability of exceedance is commonly used by utility planners “to characterize the uncertainty around annual energy production for wind and solar projects,” the paper reports. It “can also be applied to natural gas price projections.”
The study’s “statistical concept” quantifies the risk at each P-level of expected renewables output levels and natural gas prices and factors them into a levelized cost of energy comparison. “In general, higher-than-expected gas prices appear to be riskier to ratepayers than lower-than-expected wind or solar output,” noted LBNL researcher and study co-author Mark Bolinger.
Utilities contracted for or owned 55 percent of 2016’s installed wind capacity and are expected to contract for two-thirds of the 13.2 gigawatts of solar expected to be added this year. Yet, utility planners may be underestimating the hedge value of these renewable resources. A survey of more than 600 sector professionals by Utility Dive showed only 7 percent see natural gas price volatility as the main reason to invest in renewables.
Views on the LBNL paper differ across the energy industry with Charlie Reidl, executive director of the Center for Liquefied Natural Gas insisting that global demand would not put significant price pressures on proven U.S. reserves. Other authorities, however, argue U.S. reserves are being depleted too rapidly to keep up with growing demand.
The disagreement underscores the importance of a method like LBNL’s that quantifies the risk and uncertainty. Renewable industry representatives have called the LBNL paper an important contribution that could be useful for utility integrated resource planning.
Source: Utility Dive, 6/29/17