Can deployment of renewable energy put downward pressure on natural gas prices?

High and volatile natural gas prices have increasingly led to calls for investments in renewable energy. One line of argument is that deployment of these resources may lead to reductions in the demand for and price of natural gas. Many recent US-based modeling studies have demonstrated that this effect could provide significant consumer savings. In this article we evaluate these studies, and benchmark their findings against economic theory, other modeling results, and a limited empirical literature. We find that many uncertainties remain regarding the absolute magnitude of this effect, and that the reduction in natural gas prices may not represent an increase in aggregate economic wealth. Nonetheless, we conclude that many of the studies of the impact of renewable energy on natural gas prices appear to have represented this effect within reason, given current knowledge. These studies specifically suggest that a 1% reduction in US natural gas demand could lead to long-term average wellhead price reductions of 0.8-2%, and that each megawatt-hour of renewable energy may benefit natural gas consumers to the tune of at least $7.5-20. (c) 2005 Elsevier Ltd. All rights reserved.