US & Europe Details

In the US, the average price per watt for a single module fell 1.1% or five cents to $4.56 per watt. This price is 5.4% below last year, but remains ~5% higher than the record low reached in 2004. In Europe, the average price fell .9% or four cents to 4.44 euros per watt. This price is a new record low and 5.5% below last year.

In kWh, the price for industrial solar electricity fell .8% or .16 cents to 20.4 cents per kWh. Prices are now the lowest since October 2004 (almost five years) and only .5% from the record low set in June 2004. We should see a new record low by the end of the summer based on current price trends.

Keynesian Price Stickiness

Prices on the individual retail side aren’t falling as quickly as the wholesale numbers I wrote about yesterday: ~5.5% vs. 40+%, respectively. Longterm contracts and general Keynesian price stickiness will eventually shakeout and the lower equilibrium will emerge by the end of 2009/beginning of 2010. And a quick note: these survey prices are per individual module. Average customers generally buy multiple modules that integrate into panels, so the price per watt for most projects is discounted for the bulk purchases to currently below $3 per watt. Still, the Solarbuzz price survey is useful as a comprehensive view of the individual retail sector and gives insight into the trends of the whole industry.

I’ll let you know as further developments occur.

Onwards in the Sustainable Energy Transition-

With winter ending in a few short weeks, I’m starting to wonder whether prices of natural gas could fall another 20+% toward $3 per MMBtu or even lower. This would make natural gas-fired electricity a viable substitute for coal-fired electricity. For historical reference, natural gas prices averaged below $3 per MMBtu throughout the 1990s and one year in the 2000s (2002).

The evolution of natural gas’s price is an interesting story. Depleting natural gas fields have made US output roughly stagnant since 1970. Increased consumption was provided for by increasing imports, mostly by pipeline from Canada. But then their production began to stagnate ~2000 as depletion took hold in their fields. The only way to increase or even maintain production to satisfy demand was through raising prices to make difficult fields (like unconventional shale) more profitable and to import from other global producers through an expensive process of liquification at an extremely cold temperature. The capability to ship this Liquid Natural Gas (LNG) which emerged in the 1990s has created a more global market for the fuel rather than the stranded regional markets of old made up of pipeline grids (which still account for more than 80% of natural gas flow due to their lower cost).

Price increases from ~$2 to above $6 brought on enough new domestic production in the US to lower import needs in 2008. But now that prices slid to ~$4, the number of gas rigs exploring and producing is falling quickly. We will probably see a fall in US production if prices do not rise. But that’s not a big deal in the short-term because demand is so low. Whether it will be an issue next winter or the winter of 2010-11 depends on how much economic recovery takes place, how cold it gets, and how quickly and deep gas production falls.

Hopefully, the lower energy costs will help our economy gain some footing — and we will work hard to keep such costs low by continuing to deploy efficiency and renewables to begin replacing fossil fuels.

Onwards-

With demand so subdued by lower industrial production my earlier prediction about natural gas in 2009 needs to be revised downward to a floor around $4 per MMBtu instead of $5. This low price should depress natural gas production within a few months as the marginal cost of production at many potential and current fields is higher than this low price.

On the Climate Front

While natural gas is a greenhouse gas-polluting fossil fuel, it emits ~45% less than the more carbon-intense coal. So, prices ~$4 or lower, while currently higher than coal at ~$2, begin to become competitive once you figure in sulfur dioxide permits, etc. This price drop opens the potential for emissions reduction through the substitution of coal with natural gas. A switch is possible immediately as natural gas plants have the capacity to provide a larger share of our national electricity. In fact, the most recent comprehensive data from the end of 2007 show that natural gas summer generating capacity was 25% larger than coal at 393 GW vs. 313 GW. And unlike oil, the US is largely self-sufficient in natural gas – with only a small percentage of the fuel coming from Canada and elsewhere.

A switch to natural gas is not viable long-term as the fuel will probably see production constraints similar to oil within another decade or so. But natural gas can help in the transition to wind, solar, and other largely carbon-free energy sources in the short-to-medium-term.

Bottom Line: The current economic dive is sending natural gas demand so low that prices are moving toward being competitive with coal again at least for a few months. A switch from coal to natural gas can help us lower US greenhouse gas emissions a great deal as we ramp up renewable energy technologies to switch from both fossil fuels in the decades ahead.

Onwards in the sustainable energy transition-

It took four years for US GDP to fall 25% in the Great Depression. Yet Japan’s economy is currently falling at twice that rate. Will it stabilize at current levels or are we in the beginning of the first global depression since the 1930s? The head of the IMF used the d-word to describe the advanced economies of Japan, Europe, and the US. But we will see how it turns out.

With non-OPEC oil production expected to stagnate rather than fall a few % in 2009, this year’s depressed energy demand seems to require OPEC to make another production cut soon. The cut should probably occur before the winter is over, especially since mild Spring and Fall weather translates into less heating oil demand in the Northern Hemisphere and lower cooling loads in the Southern Hemisphere. The determinant of the extent of global energy demand’s fall lies in the growing economies like those of China and India. Since India is less export-oriented, they seem to be less affected than China. India is projected by the International Energy Agency (IEA) to have demand growth of ~3% (.1 million barrels per day (Mbd)) in 2009. China’s demand growth is forecast to only be 1.1% ( still a significant .09 Mbd) due to a large fall in exports and related energy demand for industrial production.

The US Energy Information Agency (EIA) now predicts a global demand drop of ~1.2 Mbd this year. But figures like those coming out of Japan may show that global demand will fall even further. This puts serious bearish pressure on oil prices in 2009. But then there will be bullish pressure in 2010 or whenever the global economy recovers because the price is so low many producers are cutting back and letting oil field decline dominate the supply picture going forward.

As I wrote a few weeks back, Saudi Arabia alone could cut output enough to make up for a 5% fall in global demand on top of the ~2 Mbd cut it has already made. And Russia may cut its production this year if prices fall below $35 consistently. Their production is already down ~.8% in January due to natural depletion, a rate that could accelerate due to a market response to prices and/or a governmental response to produce less.

Bottom Line: The rapid fall of Japan’s economy may be a harbinger of further bad economic news globally. This has a short-term bearish impact on prices and translates into lower greenhouse gas emissions. But the only way we keep prices and emissions from shooting up once economic stability returns is through continued focus on efficiency and renewables aided by comprehensive international climate policy such as an emissions cap and tradable international permits.

In the meantime, I will keep you updated on the latest economic and energy information that determines prices and emissions in the months ahead.

So, let’s review energy prices a bit compared to last year. The price of coal is about twice last year’s level in the US and even higher in Asia, with Japan signing a metallurgical coal contract for steelmaking that is 3.6 times the price a year ago. The price of natural gas is ~50% higher than it was a year ago in North America and many other markets. And oil is ~60% higher than last year, with gasoline up ~35% and diesel up ~60%. And prices were considered to be high back in 2007 too! For commodities so crucial to our everyday life, these changes are having serious and widespread effects. Automakers are reporting July sales in the US with continued 15-35% declines in SUV and truck sales, weeding out the people who bought such vehicles for show rather than for actual off-road use (these folks used to account for ~1/4 of the market, according to Ford). Meanwhile, a worrying trend behind major oil companies’ record profits for the 2nd quarter is the fact that most of them are producing less than they did a year ago. Economists, when are higher prices going to bring larger supplies like most of your models say? We’ll see…

Yesterday’s weekly natural gas report didn’t put much of a dent in the bullish sentiment of the last few days, as inventories gained less than projected to remain below the five-year average level. My question remains, “Will 2009 be the year renewables got competitive with fossil fuel prices without subsidies?” Whether or not, increasing our efficiency will help us weather the current storm of high energy prices and slow economic growth.