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Utility-Scale Wind and Natural Gas Volatility: Uncovering the Hedge Value of Wind for Utilities and Their Customers

AUTHOR: Huber, Lisa
DOCUMENT ID: 2012-07
YEAR: 2012
DOCUMENT TYPE: Report or White Paper
PUBLISHER: RMI
 

This paper explores methods of quantifying natural gas volatility by examining theoretical models as well as case studies of utility hedging strategies. Including these volatility risk premiums in the price of natural gas establishes a basis for even comparison with utility-­scale wind contracts, which enables smarter decision analysis by regulatory agencies, utilities, and ratepayers. This analysis shows that even without the Federal Production Tax Credit and Renewable Portfolio Standards power pricing support, wind becomes competitive with natural gas years sooner than is commonly believed, and in many cases is the economic choice for new build generation.

 
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