Any comparison of the levelized costs of fixed-price renewable generation with variable-price gas-fired generation requires making assumptions about the price of natural gas (i.e., the fuel) over the life of the generation asset. One approach sometimes used in resource planning exercises, but that may not adequately account for fuel price risk, is to simply adopt the latest reference-case fuel price projection from the EIA or some other long-term forecasting entity. Alternative approaches that may offer the basis for a better cost comparison (with respect to fuel price risk) include seeking to quantify the value of long-term price stability and incorporating that value into the cost comparison, or alternatively assessing the cost of achieving fixed-price gas-fired generation (through the use of natural gas futures or forwards) and comparing those costs with renewable electricity supply. In this memo we focus on the last of these possible approaches, by comparing AEO 2009 reference-case gas price forecasts with contemporaneous natural gas prices that can be locked in through the futures market. In other words, we simply update our past analysis to include the latest long-term gas price forecast from the EIA, as contained in AEO 2009. For the sake of brevity, we do not rehash information (on methodology, potential explanations for the premiums, appropriate caveats, etc.) contained in our earlier reports on this topic.
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