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February 18, 2005
Controlling Natural Gas Prices: Energy Efficiency to the Rescue
Natural gas prices are heading higher, and that means higher energy bills to keep homes heated. It also means higher electricity costs, because natural gas is increasingly the fuel of choice for generating electricity during periods of peak power demand. Last year, federal officials and market analysts expressed their concern over the apparent long-term trend of rising natural gas prices and the potential impact of those price hikes on the U.S. economy.

A new study by researchers at Lawrence Berkeley National Laboratory suggests that renewable energy and energy efficiency can help keep natural gas price increases in check. The study, titled Easing the Natural Gas Crisis: Reducing Natural Gas Prices through Increased Deployment of Renewable Energy and Energy Efficiency, was written by Ryan Wiser, Mark Bolinger, and Matt St. Clair of Berkeley Lab's Environmental Energy Technologies Division.

"Our report shows that renewable energy and energy efficiency can displace gas-fired electricity generation, reducing gas demand and putting downward pressure on natural gas prices and bills," says Wiser.

They based their findings on a review and analysis of recent modeling studies that evaluate the effects of renewable energy and greater energy efficiency on reducing gas prices.

"The 13 studies and 20 specific analyses that we review consistently show that increased use of renewable energy and energy efficiency can begin to reduce natural gas prices," says Bolinger. "Our study is the first to demonstrate that these results are broadly consistent with economic theory, results from other national energy models, and limited empirical evidence."

One of their key conclusions is that existing studies generally show that each 1-percent reduction in natural gas demand nationwide is likely to lead to a long-term wellhead price reduction of 0.8 percent to 2 percent, with some studies showing even more significant price reductions.

"This means that increased use of renewable energy benefits natural gas consumers at a level conservatively estimated to be equivalent to at least $10 to $20 for each megawatt-hour of incremental renewable generation," notes Bolinger.

The researchers also developed a simple analysis tool that can be used to evaluate the potential impact of renewable energy and energy efficiency on natural gas prices and bills across all sectors of the economy.

Easing the Natural Gas Crisis estimates how much money consumers might save on natural gas if various state or federal programs to deploy renewable energy (labeled RE or RPS) or increase energy efficiency (labeled EE) were implemented. National savings could range from at least $0.6 billion to as much as $23 billion, depending on the program.

"Based on our analysis, we find that the 18 existing state renewable portfolio standards [RPS] in the U.S. could provide natural-gas bill savings of $7 to $18 billion on a net-present-value basis, while the California RPS alone could deliver national consumer savings of $3 to $9 billion," says Wiser. A number of states are developing renewable portfolio standards, which mandate that electricity suppliers meet their supply needs with a specific minimum percentage of renewable energy.

"Overall, our study suggests that renewable energy and energy efficiency can help to alleviate the threat of high natural gas prices over the short and long term, thereby lowering gas and electricity bills for consumers," concludes Wiser.

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