Clean-Energy Plan Seen Benefiting Natural Gas Suppliers

Natural gas, which already is edging aside coal in American electricity generation, would be one of the biggest beneficiaries of a clean-energy mandate for utilities under consideration in Congress this year.

Senator Jeff Bingaman, a New Mexico Democrat and chairman of the Energy and Natural Resources Committee, introduced a measure March 1 to force electricity companies to use an increasing share of energy produced from “clean” sources over the next two decades.

The bill reshapes the energy debate by calling for sources that emit less carbon than coal, a definition that includes natural gas, instead of focusing on zero-emission renewable sources such as wind and solar, both critics and supporters say. While the proposal faces long odds of getting enacted this year, Bingaman’s plan may gain a powerful ally -- and new opposition from environmental groups.

“The obvious goal is to expand it beyond renewables in order to get enough votes,” said Dan Simmons, director of regulatory and state affairs at the Institute for Energy Research in Washington, a group critical of the legislation. “By including natural gas, it’s a way to broaden support.”

Bingaman’s clean-energy mandate may benefit companies like Exxon Mobil Corp. (XOM) of Irving, Texas and Oklahoma City-based Chesapeake Energy Corp. (CHK), the two largest producers of natural gas in the U.S.

Senator Jeff Bingaman proposed a measure that would require electricity providers to deliver an increasing share of less-carbon intensive energy over the period of 2015 to 2035. Photo: Daniel Acker/Bloomberg Close

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Senator Jeff Bingaman proposed a measure that would require electricity providers to deliver an increasing share of less-carbon intensive energy over the period of 2015 to 2035. Photo: Daniel Acker/Bloomberg

Gas Alliance Reaction

“We are analyzing the details of this proposal,” Daniel Whitten, a spokesman for America’s Natural Gas Alliance, a Washington-based group that represents natural gas producers, said in an e-mail. “We appreciate the fact that Senator Bingaman recognized the important role that natural gas can play as part of our nation’s clean energy future.”

Solar companies such as Tempe, Ariz.-based First Solar Inc. (FSLR), the world’s largest maker of thin-film solar panels, and Suntech Power Holdings Co. of Jiangsu, China, the largest panel maker, could be among the long-term beneficiaries of a bill such as Bingaman’s.

Unlike the cap-and-trade legislation that passed the House of Representatives in 2009, Bingaman’s measure would not put a limit on carbon emissions and only applies to the largest producers of power, according to documents distributed by the the Senate energy committee. The measure would neither impose new taxes nor cost the government in new spending, the committee said in its documents.

Carbon-Reduction Credits

Bingaman’s proposal would require electricity providers to deliver an increasing share of less-carbon intensive energy over the period of 2015 to 2035. Generators must be a zero-carbon energy source or “have a lower carbon intensity than a modern, efficient coal plant,” according to the proposal.

It doesn’t mandate a particular set of technologies and “it lets the market and American ingenuity establish the best path forward,” Bingaman said at a March 1 event to unveil the bill in Washington.

Power providers would earn credits toward the low-carbon goals. The credits would be based on the amount of carbon reduction, so gas, which has half the emissions of coal, would only get half the credit of zero-emission wind or solar. Thus the bill would “provides even greater incentives for zero emissions,” the senator said.

Congress has considered various forms of renewable energy standards, which would mandate that electricity producers purchase more solar, wind or other low-carbon sources, in previous years. None became law.

‘Important Step’

“I don’t know much about the act, other than I would bet the house that nothing substantial in it will get passed prior to the November election,” said Alex Morris, an energy analyst at Raymond James & Associates Inc. in Houston. “I’d be extremely surprised if anything happens, and I don’t think many -- if any -- companies are really planning around it.”

The administration of President Barack Obama sees the proposal as “an important step,” White House spokesman Clark Stevens said in an e-mail.

“The problem is eliminating outdated wasteful government incentives for the robust fossil-fuel industry, not adding new ones,” Chase Huntley, clean energy policy adviser for the Wilderness Society, said in a statement. “Natural gas is at best only 50 percent cleaner than coal.”

At first the market probably will choose gas, according to a preliminary analysis released in November by the Energy Information Agency. The agency modeled various types of clean- energy standards, which are similar but not the same to the one Bingaman unveiled last week.

Gas Versus Solar

Under each scenario, gas use spikes in the first few years of the mandates, and ends up at least 10 percent -- and potentially more than 30 percent -- higher than the baseline forecast for 2025. And total natural gas generation is probably four to five times greater than that for wind and solar combined. The EIA is preparing a revised analysis, which will be released in the coming weeks.

Use of coal to generate electricity will drop 2 percent this year to the lowest since 1992, while gas-fired consumption rises 5.6 percent, according to the U.S. Energy Department. Gas prices have tumbled to the lowest levels since February 2002 this year amid a boom in output and milder-than-normal weather.

The U.S. could use natural gas as “a transition fuel” from oil and coal to renewables, said Steven A. Cohen, a professor of public affairs at Columbia University. “We’re not ready yet for full-scale renewable energy because we don’t have the technology to make it cost effective on a large scale.”

Global Warming

Natural gas “has deficiencies, such as how it’s extracted from the ground, but we don’t live in a perfect world, and you have to look at what can be put in place, which things will be fast, which will take longer,” Cohen said. “Its capital requirements are lower than nuclear. If you’re going to invest in a transitional fuel, you need to think about the amortization of the infrastructure.”

Carbon dioxide emissions since the industrial revolution has led to a warming of the earth’s temperature over the past 50 years, which threatens to cause extreme weather, drought and flooding of coastal zones, according to the U.S. Global Change Research Program.

“Those who continue to deny climate change fail to realize the value renewables have to both energy security and economics,” said Jesse Pichel, an analyst with Jefferies Group Inc. (JEF) in New York. “Our 50 years of legacy investment and subsidy for fossil fuels make it hard to adopt renewables.”

To contact the reporters on this story: Mark Drajem in Washington at mdrajem@bloomberg.net; Justin Doom in New York at jdoom1@bloomberg.net

To contact the editor responsible for this story: Jon Morgan at jmorgan97@bloomberg.net

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