BREAKINGVIEWS-Green energy may yet survive poison of cheap gas

Thu Apr 12, 2012 9:01pm BST

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(The author is a Reuters Breakingviews columnist. The opinions expressed are his own.)

By Christopher Swann

NEW YORK, April 12 (Reuters Breakingviews) - The cheapest natural gas price for a decade is a boon for American homeowners. At less than $2 per million British thermal units, though, it looks toxic for its already troubled rival, the solar energy sector. But gas isn’t close to chocking the life out of it just yet.

There’s certainly enough bad news to go round. Energy bigwigs at a conference this week identified the rock-bottom gas price as the biggest short-term obstacle to developing greener fuel sources. As if to underline the point, the benchmark gas price dipped to its lowest level since January 2002 as they were talking. Meanwhile, solar plant developer BrightSource Energy pulled its initial public offering on Wednesday, citing poor market conditions. On top of last year’s controversial bankruptcy of Solyndra and the 85 percent drop in industry leader First Solar’s (FSLR.O) share price over the past 12 months, the sector looks far from healthy.

Still, greens shouldn’t lose heart. The price of generating electricity from the sun’s rays has been falling almost in tandem with gas prices. The wholesale price of panels halved last year, as have solar generation prices: a typical long-term contract in California, a sweet spot for the industry, has plummeted from about 17 cents per kilowatt hour in 2010 to as low as 8 cents, according to Green Tech Media. That brings some solar capacity within striking distance of natural gas at around 6 cents.

And solar power has a distinct advantage: its costs can be locked in 25 years in advance. Gas offers no such guarantee. For an electric utility this is equivalent to a cautious homeowner opting for a safer fixed rate mortgage over a risky floating rate loan.

Moreover, the current bargain U.S. gas price can’t be relied on to last forever, even with hydraulic fracturing uncovering vast troves of the resource. America is also likely to start exporting gas in the next few years, which could tug the nation’s gas price back toward the global average – currently roughly five times higher.

This will be cold comfort for many solar panel makers who won’t survive the industry shakeout that slumping prices are causing. But the rationalized sector that emerges should be well placed to take on all comers.

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CONTEXT NEWS

- The price of natural gas in the United States fell to its lowest level in a decade on April 11, depressed by mild weather and a glut of supply.

- It marks the first time since January 2002 that gas has dropped below $2 per million British thermal units. In March natural gas prices fell 19 percent, the largest drop in over a year, and have fallen another 6 percent so far in April.

- American solar power plant developer BrightSource Energy said on April 11 it was withdrawing its initial public offering. It had hoped to raise up to $182.5 million.

- The price of solar energy in certain areas of the United States has fallen below 8 cents per kilowatt hour – compared to about 6 cents for natural gas based on current prices - according to consultancy Green Tech Media.

- The average cost of installed solar power dropped by 20 percent last year, according to the Solar Energy Industries Association, driven by the construction of larger-scale plants. The wholesale price of solar panels fell 50 percent last year.

- The WilderHill Clean Energy Index, which includes panel makers such as First Solar, Suntech Power Holdings STP.N and Trina Solar (TSL.N), fell 49 percent in 2011.

- Reuters: US natgas hovers near 10-year low under $2 per mmBtu [ID:nL2E8FC425]

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(Editing by Antony Currie and Martin Langfield)

((christopher.swann@thomsonreuters.com)) Keywords: BREAKINGVIEWS SOLAR/GAS

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