Natural Gas or Renewables? Who’s Getting the Job Done Today?
Natural gas is helping our economy in several different ways. Job and wealth creation from natural gas development has been documented over and over again (see this post for the recent example). What we haven’t done adequately is to compare natural gas with renewables on the same basis. Natural gas, as it turns out, creates jobs and wealth at rates far surpassing renewable energy sources and is every bit as clean and safe. Let’s review the facts.
Economic Contributions of Natural Gas
The Marcellus Shale Commission recently assembled some of the employment numbers for Pennsylvania’s natural gas industry. This data makes it as clear as can be, the natural gas industry has carried the economy of much of the Commonwealth, that part with natural gas development, through some very difficult times. Here are the essentials:
Employment (2009Q2 to 2012Q2):
• Core industries were up 19,945 (+182.8%).
• Ancillary industries were up 16,037 (+8.2%).
• All industries increased 111,651 (+2.0%).
• 2012Q2 Marcellus Shale related industries total employment was 243,116.
Wages (2011Q3 through 2012Q2):
• The average wage across all industries was $48,087.
• The average wage in the core industries was $89,116, which was approximately $41,029 greater than the average for all industries.
• The average wage in the ancillary industries was $65,122, which was approximately $17,035 greater than the average for all industries.
New Hires (2009Q3 to 2012Q3):
• Statewide new hires in the core industries were 122.7% higher in 2012Q3 than in 2009Q3.
• Statewide new hires in the ancillary industries were 30.0% higher in 2012Q3 than in 2009Q3.
• Statewide new hires across all industries were 11.3% higher in 2012Q3 than in 2009Q3.
• In 2010Q2, 71% of new hires in the core industries were PA residents; in 2011Q2, this increased to 74%. 2012Q2 research is underway.”
Economic Contributions of Renewables
Now let’s look at the renewables side of the ledger. A study by the Beacon Hill Institute at Suffolk University, in Boston, which came out recently analyzes the impacts of Pennsylvania’s Alternative Energy Portfolio Standard (AEPS) – a fancy name for a state mandate enacted in 2004 requiring utilities in the Commonwealth to generate 8% percentage of electricity from renewable sources such as solar, hydro, wind and biomass. One might ask why states are involving themselves in economic decisions better made by utilities themselves, but the reason, of course, is because they can, they want to be politically correct and the voter seldom makes the connection between such political decisions and their electric bills. The Beacon Hill study took a hard look at this issue from this perspective, analyzing the benefits and costs of such mandates, as well as assumptions being used by the Energy Information Administration. The second paragraph sort of sums it all it up, doesn’t it?
Since renewable energy generally costs more than conventional energy, many have voiced concerns about higher electric rates. A wide variety of cost estimates exist for renewable electricity sources. The EIA provides estimates for the cost of conventional and renewable electricity generating technologies. However, the EIA’s assumptions are optimistic about the capacity of renewable electricity to generate cost‐efficient and reliable energy.
Governments enact AEPS policies because most sources of renewable electricity generation are less efficient and thus more costly than conventional sources of generation. The AEPS policy forces utilities to buy electricity from renewable sources and thus guarantees a market for them. These higher costs are passed on to electricity consumers, including residential, commercial and industrial customers.
Let’s look at what the data from the study said a little more closely, focusing first on the costs of Pennsylvania’s renewables mandate.
Notice the study has concluded the renewables mandate will cost Pennsylvania electric ratepayers somewhere between 8.0% to 15.2% more in electricity costs by 2021, eight years from now. This is the real cost of renewable energy. Obviously, some incentives for renewables to encourage research and development and advance the overall cause may make sense, but are ratepayers prepared to pay those kinds of costs for the thrill of being green? One wonders, especially when there are cost-effective alternatives such as natural gas available. But, this isn’t half of it. Consider these study findings regarding the economic impacts:
Notice the levelized cost of electricity for natural gas is lower than anything but biomass and hydroelectric generation, both of which can be large users of land. Notice, also, the income and jobs impacts, which are supported by other data sources. Let’s look at a Marcellus Shale Commission (MSC) fact sheet, for example, to examine the jobs expected in the coming years for natural gas development.
The Beacon Hill study also predicts the renewables mandates will decrease investment. Meanwhile natural gas related companies are included in investment portfolios everywhere, including New York State’s pension funds. Below is a list of some of the natural gas related companies we see and hear about often, along with the holdings in each by New York State, along with the capital gains made on those stocks.
The Comptroller’s investments as a whole have enjoyed capital gains of 43.3% over the period held as of March, 2012, but notice natural gas related companies have produced gains of 125.1% – nearly three times the capital gains associated with the pension fund as a whole. Compare that to expected declines in renewables.
There have, in fact, been some spectacular losses in renewable energy. Here’s a recent headline we couldn’t help noticing, for example:
Hedge Fund Wins Big Bet against Solar
In a quarterly newsletter, the hedge fund Greenlight Capital, Inc. announced that it has closed its short position in First Solar, “one of the most profitable shorts in the history” of its funds. Stock prices for First Solar, which received a $1.4 billion stimulus loan from the same program that propped up Solyndra, plummeted primarily because Germany rolled back solar power subsidies.
These examples and the Beacon Hill study demonstrate the renewables industry has a long way to go before it can do what natural gas does for our economy. The number of jobs created in that industry is also tiny compared to the number of jobs in the natural gas industry. Renewables have a future, to be sure, but that future is only going to come incrementally and natural gas is the bridge to get us there and the backup energy source for the inherent difficulties associated with the fact the sun doesn’t always shine and the wind doesn’t always blow.