Lower Natural Gas Prices Could Impact Solar, Wind
Jim Dumas, right, with business partner Craig Huntley, says lower costs to produce solar panels help the industry compete with natural gas, whose prices are falling.
Fracking, a method that forces water, sand and chemicals underground to harvest natural gas, has generated negative attention from environmentalists in recent years. But could it also spell trouble for the renewable energy industry, specifically solar and wind?
Formally known as hydraulic fracturing, this method has led to a sharp decline in the cost of natural gas by making it easier to mine and therefore making it much more plentiful.
Natural gas prices today, compared to five years ago, bear this out: On Sept. 23, the price of natural gas was $3.60 per million British Thermal Units (MMBtu). Five years ago, it hovered around $8. According to Richard Meyer, energy analyst for the American Gas Association, it’s not just fracking that has made natural gas far more available in the United States than a decade ago. Horizontal drilling — which creates better access to gas shale through curved wells — has also become prevalent.
“What we’re seeing is a new natural gas market,” Meyer said.
This good news for consumers was recently highlighted by NStar’s August proposal to cut prices 26.5 percent to 39 cents per therm this fall, down from nearly 53 cents. But where does that leave solar, wind and other forms of renewables, which have tried to attract investors and consumers through the promise of energy generation that is more cost effective and cleaner than fossil fuel sources?
Meyer said natural gas and clean energy sources like wind turbines and solar-generation systems work in concert, with natural gas supplementing the energy created by variable factors such as fluctuating wind volumes. And if natural gas is cheaper, Meyer said, so will delivery of those types of renewable energy.
Clean Tech Venture Funding Takes A Dip
But there has been a palpable dip in clean tech venture funding on a broader scale over the last couple of years, according to data from the National Venture Capital Association (NVCA). In 2010, total venture investments in the industrial/energy submarket within the clean tech industry were $3.39 billion compared to $2.57 billion when the Great Recession hit in 2009. It climbed to $3.68 billion in 2011, but then slid to $2.84 billion in 2012. Investment for the first two quarters of 2013 was $569.4 million, so the industry has a way to go this year to keep pace with 2012 investment levels. The number of venture capital deals also decreased from 316 in 2010 to 270 in 2012, according to NVCA.
Alicia Barton, CEO of the Massachusetts Clean Energy Center (MassCEC) said the economics of renewable energy development become more challenging in the face of cheap natural gas prices.
“I don’t think there’s any way to argue that that’s not a factor,” Barton said.
Barton pointed out that venture capital levels for all types of startups have waned in recent years, though it’s been somewhat “more pronounced” in the clean technology sector. But she said low natural gas prices aren’t the only factor. With federal budget cuts taking effect this year due to sequestration, she said there has also been uncertainty about the availability of federal tax credits, which has dampened the mood for some clean energy startups.
A Maturing Market?
It may be that the renewable energy industry won’t have to rely as heavily on government incentives to be successful in the future. Barton said many clean energy sources are cost-competitive with natural gas, and the incentives sweetened the deal. But Jim Dumas, principal of Hopkinton-based Solect Energy, said other factors are driving down costs in the solar energy sector, and it could give the natural gas industry a run for its money.
Dumas explained that as natural gas prices have dropped in recent years, so too has the cost of making the solar panels Solect uses in its electricity-generating systems. This is because there are more players in the market.
“It has to reach that critical mass needed,” to drive costs down, Dumas said. Then, that savings can be passed on to the consumer.
Mark Durrenberger, president of Hudson-based New England Clean Energy, said low natural gas prices may drive down electricity costs, but he doesn’t expect that to negatively impact his solar energy business, which he launched in 2006. Like Dumas, Durrenberger said the maturing renewable energy market has made solar energy cost competitive with traditional electricity sources.
“When I started the business seven years ago, pretty much every customer was doing it for environmental reasons. Now it’s different because the costs have come down so much. People are doing it for the economic and environmental (benefits),” Durrenberger said.
Durrenberger also pointed out that banks are more willing to lend money to consumers who want to install solar energy systems, simply because they are more familiar with the technology today than they were just a few years ago.
“They didn’t understand it ... now more and more banks are getting involved,” Durrenberger said.
But there is good news for clean energy, especially if you’re an industry startup in the Bay State. Two weeks ago, MassCEC released its 2013 Massachusetts Clean Energy Industry Report, which showed the industry has performed better in Massachusetts than in other parts of the nation — in some ways, strikingly so.
Bay State Bucks Global Trend in VC Investment
For example, Massachusetts companies attracted nearly $146 million in venture capital in 2012, compared to $132 million in 2011 — a 10.4-percent increase. Meanwhile, investment declined globally by 45.9 percent, and nationally by 40.6 percent, according to MassCEC. And Massachusetts companies accounted for 16 percent of all clean energy venture capital in the U.S. last year, according to MassCEC.
“Per capita, private investment in clean energy companies in Massachusetts is the highest in the nation,” Barton said.
But where government incentives are concerned, Massachusetts, like the rest of the country as well as Europe, experienced a steep decline in support. MassCEC reported that government loans, grants and guarantees for clean energy projects declined nearly 70 percent from 2011 to 2012, a result of sequestration. Traditionally, Massachusetts has been proactive about capitalizing on incentives in order to promote renewable energy projects, so that drop could have a profound impact on the industry here.
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