Renewable energy as a natural gas price hedge: the case of wind

Electric utilities use natural gas to fuel many of their power plants, especially those plants which provide electricity at peak and intermediate hours. Natural gas prices are highly volatile and have shown a general upward trend. Wind energy can provide a cost-effective hedge against natural gas price volatility or price increases. This conclusion is based on analysis of the costs of marginal conventional generation given the historical probability distribution of natural gas prices, the cost of wind energy, wind integration costs, transmission costs for wind energy, the capacity value of wind, and environmental benefits of wind energy for a hypothetical utility in the Southwestern United States. The efficacy of using wind energy as a hedge at a particular utility will depend on site specific conditions.