Although oil and natural gas prices have fallen in recent months, the return of cheap fossil fuels to the global market should not impact the overall long-term deployment of renewable energy, analysts with S&P Global Commodity Insights said during a Thursday webinar.
The Inflation Reduction Act boosted the percentage of U.S. energy expected to come from renewable resources in the 2040s from 65% to 75%, according to Katherine Nelson, a senior research analyst with the S&P Global Commodity Insights energy research team.
For the U.S. to reach 90% clean energy will likely require advances in still-nascent technologies such as long duration storage, advanced nuclear and hydrogen, but these resources may be more sensitive to fluctuations in oil and gas markets, said Steve Piper, director of energy research for S&P Global Market Intelligence.
Global oil and gas prices seem to have normalized since the Russian invasion of Ukraine upended markets two years ago, and lower-cost oil and natural gas seems likely to stick around for the foreseeable future, Piper said. However, it does not appear that low-cost fossil fuels will affect the long-term pace of renewable energy development, he said.
The U.S. remains on track to source 75% of its energy from renewable resources by 2042 despite lower fuel prices, Piper said. Falling oil and gas prices will impact revenue from fossil generation as well as from solar and wind, as overall wholesale energy prices were bolstered by increased fuel prices, Nelson said. However, incentives built into the IRA should help keep solar revenue stable while earnings from fossil generation fall, she said.
But while revenue structures will incentivize developers to build more wind, solar and battery storage in the coming decades, the nation's remaining fossil generation should also prove resilient. Gas generation in particular will continue to be used to fill in the gaps around cheaper renewable energy, Nelson said.
“The 75% green/25% fossil [split] is where we seem to be somewhat locked in,” Piper said. “Potential new technologies that could move the needle might include less-expensive storage and longer-duration storage as well as the incremental expansion of hydroelectric resources, biomass ... carbon capture, small modular reactors, geothermal and other zero-carbon resources.”
Nelson noted that the most recent projections by S&P Global Commodity Insights do not model the impact of new incentives for small modular reactors or green hydrogen pending forthcoming guidance on those incentives from the Internal Revenue Service.
Even if the IRA is successful in cutting the cost of hydrogen to $1/kg, that would still exceed the current, lower cost of natural gas, Piper said. So long as natural gas remains inexpensive, he said, it's unlikely that hydrogen would be used widely as a fuel for electrical generation, relegating hydrogen fuel to more “niche” roles such as the manufacture of fertilizer, he said.