Renewable Energy Emerging as Viable Utility Hedge Strategy, Reports Energy Insights
FRAMINGHAM, MA – MARCH 7, 2007 – A recent analysis published by research and advisory firm Energy Insights finds that pronounced natural gas price volatility and greenhouse gas (GHG) policy evolution are legitimizing the acquisition of renewable energy (RE) as a viable utility economic hedge strategy. The report, entitled Renewable Energy as a Utility Hedge Strategy (doc # EI205166), contends that RE resources are increasingly offering utilities the means to shield themselves from possible financial losses caused by erratic fossil fuel prices and, in some cases, supply interruptions.
According to Nadav Enbar, research analyst and co-author of the report, "Pronounced natural gas price volatility and other compliance risks encourage utility acquisition of fixed-price resources, particularly renewables, on a purely economic basis. However, most utilities do not currently account for the hedge value of renewables and thus do not recognize the resource's full value."
The report further asserts that conventional strategic planning methods undervalue RE. In addition, an overriding perception held by utilities of RE's operational shortcomings (e.g., intermittency, reliability, systems integration) and regulatory uncertainty are hampering broader adoption of RE as a risk hedge proposition. To address these barriers, the report profiles three utilities (two investor-owned utilities and one municipal) that are successfully justifying the acquisition of renewable energy through various hedging approaches.
Adds Enbar, "With increasingly complex modeling and evaluation techniques now available, utilities are steadily integrating a rising level of risk assessment into their strategic planning efforts. Historical natural gas price fluctuations, coupled with future environmental compliance costs, will encourage a fundamental rethinking of the value of renewable energy and its role within utility portfolios."
About Energy Insights
Energy Insights, an IDC company, provides research-based advisory and consulting services focused on market and technology developments in the electricity, natural gas, and oil industries. Staffed by senior analysts with decades of direct industry experience, Energy Insights' research spans the energy value chain — upstream, wholesale, delivery, and customer service — providing independent, timely, and relevant analysis focused on key business issues. Energy Insights serves a diverse and growing global client base, including electric and gas utilities, IT vendors, independent power producers, retail energy providers, oil and gas companies, equipment manufacturers, government agencies, financial institutions, and professional services firms. For more information, please go to http://www.energy-insights.com/ . IDC is a subsidiary of IDG, the world's leading technology media, research, and events company.