Current conventional wisdom in the energy industry holds that the natural gas "fracking" revolution will lead to an era of sustained supply gluts and low prices. Low natural gas prices, in turn, will allow for rapid expansion of gas-fired electric generation, leading to a period of sustained low prices in the electricity markets. According to the conventional wisdom, then, the fracking boom will create a sustained economic headwind for renewable generators forced to compete with low-priced gas generation. But several recent scientific and economic studies suggest that the conventional wisdom might be wrong.
By now, the tectonic changes in energy markets arising from the massive increase in natural gas production brought about by application of horizontal drilling and hydraulic fracturing techniques -- commonly known as "fracking" -- are well known. As usefully summarized in this recent primer by Harvard environmental policy professors Michael McElroy and Xi Lu, fracking reversed a long-term decline in domestic natural gas production, driving prices down as much as 86% from their 2008 highs. Among the many unanticipated results, coal-fired generation has declined precipitously, reaching a record-low of 34% of generation last year. Because gas-fired generation produces only about one-half the carbon dioxide of coal generation, the nation's carbon dioxide emissions have fallen to 1992 levels despite persistent political paralysis on climate issues.