The potential impact of renewable energy deployment on natural gas prices in New England

Abstract

Concerns about the price and supply of natural gas have deepened in recent years both nationally and in New England. Renewable energy (RE) technologies can directly hedge natural gas price risk by reducing the need to purchase variable-price natural gas-fired electricity generation, and replacing that generation with fixed-price renewable electricity supply. In addition to its direct contribution to price stability, an increasing number of studies show that renewable energy deployment can also put downward pressure on natural gas prices by reducing demand for gas among gas-fired generators. These gas price reductions are, in turn, expected to reduce electricity prices and--more importantly--directly reduce consumer natural gas bills. Many recent studies have found that this effect may be significant, substantially benefiting consumers. These studies are reviewed in the attached paper, published in the proceedings of a recent national energy conference. An important consideration is that--strictly speaking--this price reduction represents a consumer benefit that comes at the expense of producers; it therefore represents a wealth transfer, not a net gain in social welfare. That said, current concerns about the price and supply of natural gas suggest that policymakers may want to pursue actions that reduce the strain of high prices on consumer energy bills.