That is the question PA Consulting Group asked itself recently, and renewable energy expert Barbara Sands came up with a three-part answer that focuses on supply chain shifts. Producers need to act on multiple fronts to manage the impact of expiring federal cash grants at the same time that demand ahead of renewable portfolio standard 2020 requirements in the states begins to rise.
Equipment manufacturers will come under pressure to improve performance and reduce the cost of their equipment, PA Consulting Group says.
“Assuming the current projected level of natural gas prices of about $4.50/MMBtu, the capital cost of wind projects would need to be at least 35% lower for wind generation to be competitive with new natural gas fired generation,” PA said. Solar companies could be facing an even more severe set of cost pressures.
Secondly, renewable energy developers will need to focus on sites and projects that provide the best economics, taking into account power prices pressured lower by natural gas cost expectations.
“Natural gas prices would need to almost triple from the current levels of less than $3.00/MMBtu for renewables to begin to be competitive on a total cost per MWh basis,” the consulting group said.
Thirdly, utilities will need to find a way to recover the high cost of renewables, which means further pressure placed on regulators to include the cost of renewable energy in future rates that are passed onto consumers.
Cost control, stark fuel competition and conflicting regulatory priorities make for an increasingly challenging US renewable energy market. “Players across the supply chain will need to adapt to survive,” said Sands.