Any discussion about U.S. energy today inevitably turns to the new, abundant and cheap natural gas supplies being fracked from shale basins — and how solar and wind can compete with it. But if you think of wind, solar and other renewable energy as an hedge against natural gas’s price volatility, they start to look a bit more competitive.
That’s how GE Capital’s Steven Taub explained one economic case for renewables during a session of the National Association of Regulatory Utility Commissioners (NARUC) summer committee meetings this week. Renewables may or may not be price-competitive with conventional generation right now, Taub said, but “one of the things you learn in Corporate Finance 101 is portfolio theory: Having assets in your portfolio that deliver a steady return can improve the overall risk-return of the whole portfolio, even if those assets offer a lower return than other things over time.”
So when GE thinks about renewables, Taub explained, “we think about them in terms of portfolio theory. Having a cost that is fixed, where variability is uncorrelated to the other variability in the portfolio, makes the portfolio as a whole more valuable.” For coal and gas, he said, the price of the fuel is much more of a factor. And because the price of fossil fuels can vary frequently and widely, depending on a range of energy related and non-energy related factors, “it is very difficult for people to have any certainty of what the costs are going to be.”