Benchmarks

An effective tool for policy-makers, utilities and stakeholders.

Renewable energy technologies, which do not require fossil fuel to generate electricity, promote power price stability by avoiding the risks associated with underlying natural gas price escalation, volatility, and delivery. A proxy for this hedge-value can be estimated by quantifying the costs faced by gas-fired generators in order to secure reliable natural gas supplies at a fixed price. These costs include direct expenses that must be paid by gas-fired, combined-cycle plants to: (1) guarantee gas delivery; and (2) eliminate price volatility and remove price escalation.

Where available, underground storage, with rapid injection and withdrawal capabilities, and located near the plant, is often the best and least-cost method to provide guaranteed gas delivery. Although the cost of storage varies considerably and is based on storage field economics and generator usage patterns, we find that average costs typically fall in the $0.50/mmBtu range. For a new combined-cycle, gas-fired generator with an aggressive heat rate of 7,000 Btu/kWh, this translates into an incremental generation cost of approximately $3.50/MWh.