IDEAS home Printed from https://ideas.repec.org/a/bla/wireae/v6y2017i3ne238.html
   My bibliography  Save this article

An assessment of price convergence between natural gas and solar photovoltaic in the U.S. electricity market

Author

Listed:
  • Joseph Nyangon
  • John Byrne
  • Job Taminiau

Abstract

The U.S. shale boom has exerted downward pressure on natural gas prices nationally, widened oil‐to‐gas price spreads, and accelerated coal‐to‐gas fuel substitution. One concern is the impact of the rising production of shale gas on further development of a domestic solar photovoltaic (PV) market. Specifically, will lower natural gas prices slow or even reverse the current rapid growth in the solar market? Using the Phillips–Sul convergence test, this paper investigates whether the levelized cost of energy (LCOE) of solar PV and natural gas electricity generation in the United States have converged. Using weekly Henry Hub‐linked natural gas spot prices and utility PV system prices from 2010 to 2015, empirical tests for convergence are applied to examine the extent of spot market integration and the speed with which market forces move the two energy prices toward equilibrium. The paper also assesses the link between the MAC Solar Energy Index (SUNIDX) and the S&P GSCI natural gas index spot prices for evidence of market integration during 2007–2015. We conclude that PV and natural gas prices are not converging, and the two markets are not integrated nationally, but some level of integration could exist at regional and state levels that will need to be tested in future research. We also conclude that complementary use of the technologies is likely; while price convergence is not likely to occur soon, distinctive complementary benefits of each resource compared to each other (e.g., fast‐start capabilities for gas and low price volatility for PV) will offer opportunities that expand market demand for both. WIREs Energy Environ 2017, 6:e238. doi: 10.1002/wene.238 This article is categorized under: Photovoltaics > Economics and Policy Energy Systems Economics > Systems and Infrastructure

Suggested Citation

  • Joseph Nyangon & John Byrne & Job Taminiau, 2017. "An assessment of price convergence between natural gas and solar photovoltaic in the U.S. electricity market," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 6(3), May.
    • Handle: RePEc:bla:wireae:v:6:y:2017:i:3:n:e238
    DOI: 10.1002/wene.238
    as

    Download full text from publisher

    File URL: https://doi.org/10.1002/wene.238
    Download Restriction: no
    File URL: https://libkey.io/10.1002/wene.238?utm_source=ideas
    LibKey link: if access is restricted and if your library uses this service, LibKey will redirect you to where you can use your library subscription to access this item
    ---><---

    References listed on IDEAS

    as
    1. Peter C. B. Phillips & Donggyu Sul, 2009. "Economic transition and growth," Journal of Applied Econometrics, John Wiley & Sons, Ltd., vol. 24(7), pages 1153-1185, November.
    2. John Cuddington & Zhongmin Wang, 2006. "Assessing the Degree of Spot Market Integration for U.S. Natural Gas: Evidence from Daily Price Data," Journal of Regulatory Economics, Springer, vol. 29(2), pages 195-210, March.
    3. Peter C. B. Phillips & Donggyu Sul, 2007. "Transition Modeling and Econometric Convergence Tests," Econometrica, Econometric Society, vol. 75(6), pages 1771-1855, November.
    4. Asche, Frank & Oglend, Atle & Osmundsen, Petter, 2012. "Gas versus oil prices the impact of shale gas," Energy Policy, Elsevier, vol. 47(C), pages 117-124.
    5. Wu, Jing & Botterud, Audun & Mills, Andrew & Zhou, Zhi & Hodge, Bri-Mathias & Heaney, Mike, 2015. "Integrating solar PV (photovoltaics) in utility system operations: Analytical framework and Arizona case study," Energy, Elsevier, vol. 85(C), pages 1-9.
    6. Giulietti, Monica & Iregui, Ana María & Otero, Jesús, 2015. "A pair-wise analysis of the law of one price: Evidence from the crude oil market," Economics Letters, Elsevier, vol. 129(C), pages 39-41.
    7. Guesmi, Khaled & Moisseron, Jean-Yves & Teulon, Frédéric, 2014. "Integration versus segmentation in Middle East North Africa Equity Market: Time variations and currency risk," Journal of International Financial Markets, Institutions and Money, Elsevier, vol. 28(C), pages 204-212.
    8. Stigler, George J & Sherwin, Robert A, 1985. "The Extent of the Market," Journal of Law and Economics, University of Chicago Press, vol. 28(3), pages 555-585, October.
      • Stigler, George J. & Sherwin, Robert A., 1983. "The Extent of the Market," Working Papers 31, The University of Chicago Booth School of Business, George J. Stigler Center for the Study of the Economy and the State.
    9. Ekaterini Panopoulou & Theologos Pantelidis, 2009. "Club Convergence in Carbon Dioxide Emissions," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 44(1), pages 47-70, September.
    10. Robinson, Terry, 2007. "Have European gas prices converged?," Energy Policy, Elsevier, vol. 35(4), pages 2347-2351, April.
    11. Darghouth, Naïm R. & Wiser, Ryan H. & Barbose, Galen, 2016. "Customer economics of residential photovoltaic systems: Sensitivities to changes in wholesale market design and rate structures," Renewable and Sustainable Energy Reviews, Elsevier, vol. 54(C), pages 1459-1469.
    12. Liddle, Brantley, 2009. "Electricity intensity convergence in IEA/OECD countries: Aggregate and sectoral analysis," Energy Policy, Elsevier, vol. 37(4), pages 1470-1478, April.
    13. Raymond Li, Roselyne Joyeux, and Ronald D. Ripple, 2014. "International Natural Gas market Integration," The Energy Journal, International Association for Energy Economics, vol. 0(Number 4).
    14. John Byrne & Job Taminiau & Kyung Nam Kim & Jeongseok Seo & Joohee Lee, 2016. "A solar city strategy applied to six municipalities: integrating market, finance, and policy factors for infrastructure‐scale photovoltaic development in Amsterdam, London, Munich, New York, Seoul, an," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 5(1), pages 68-88, January.
    15. William F. Sharpe, 1964. "Capital Asset Prices: A Theory Of Market Equilibrium Under Conditions Of Risk," Journal of Finance, American Finance Association, vol. 19(3), pages 425-442, September.
    16. Brown, Sarah J. & Rowlands, Ian H., 2009. "Nodal pricing in Ontario, Canada: Implications for solar PV electricity," Renewable Energy, Elsevier, vol. 34(1), pages 170-178.
    17. repec:ipg:wpaper:2014-439 is not listed on IDEAS
    18. Dayong Zhang and David C. Broadstock, 2016. "Club Convergence in the Energy Intensity of China," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    19. Anne Neumann & Boriss Siliverstovs & Christian von Hirschhausen, 2006. "Convergence of European spot market prices for natural gas? A real-time analysis of market integration using the Kalman Filter," Applied Economics Letters, Taylor & Francis Journals, vol. 13(11), pages 727-732.
    20. Hirth, Lion & Ueckerdt, Falko & Edenhofer, Ottmar, 2015. "Integration costs revisited – An economic framework for wind and solar variability," Renewable Energy, Elsevier, vol. 74(C), pages 925-939.
    21. Teulon, Frédéric & Guesmi, Khaled & Mankai, Selim, 2014. "Regional stock market integration in Singapore: A multivariate analysis," Economic Modelling, Elsevier, vol. 43(C), pages 217-224.
    22. Anne Neumann, 2009. "Linking Natural Gas Markets - Is LNG Doing its Job?," The Energy Journal, International Association for Energy Economics, vol. 0(Special I), pages 187-200.
    23. Meng, Ming & Payne, James E. & Lee, Junsoo, 2013. "Convergence in per capita energy use among OECD countries," Energy Economics, Elsevier, vol. 36(C), pages 536-545.
    24. Hirth, Lion, 2013. "The market value of variable renewables," Energy Economics, Elsevier, vol. 38(C), pages 218-236.
    25. Joseph E. Aldy, 2007. "Divergence in State-Level Per Capita Carbon Dioxide Emissions," Land Economics, University of Wisconsin Press, vol. 83(3), pages 353-369.
    26. Gautam Gowrisankaran & Stanley S. Reynolds & Mario Samano, 2016. "Intermittency and the Value of Renewable Energy," Journal of Political Economy, University of Chicago Press, vol. 124(4), pages 1187-1234.
    27. de Menezes, Lilian M. & Houllier, Melanie A., 2016. "Reassessing the integration of European electricity markets: A fractional cointegration analysis," Energy Economics, Elsevier, vol. 53(C), pages 132-150.
    28. Wang, Xiaoting & Kurdgelashvili, Lado & Byrne, John & Barnett, Allen, 2011. "The value of module efficiency in lowering the levelized cost of energy of photovoltaic systems," Renewable and Sustainable Energy Reviews, Elsevier, vol. 15(9), pages 4248-4254.
    29. Marlin King & Milan Cuc, 1996. "Price Convergence in North American Natural Gas Spot Markets," The Energy Journal, International Association for Energy Economics, vol. 0(Number 2), pages 17-42.
    30. Johansen, Soren, 1991. "Estimation and Hypothesis Testing of Cointegration Vectors in Gaussian Vector Autoregressive Models," Econometrica, Econometric Society, vol. 59(6), pages 1551-1580, November.
    31. Joseph Aldy, 2006. "Per Capita Carbon Dioxide Emissions: Convergence or Divergence?," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 33(4), pages 533-555, April.
    32. Eugene F. Fama & Kenneth R. French, 2004. "The Capital Asset Pricing Model: Theory and Evidence," Journal of Economic Perspectives, American Economic Association, vol. 18(3), pages 25-46, Summer.
    33. Hirth, Lion & Ziegenhagen, Inka, 2015. "Balancing power and variable renewables: Three links," Renewable and Sustainable Energy Reviews, Elsevier, vol. 50(C), pages 1035-1051.
    34. Marco Barassi & Matthew Cole & Robert Elliott, 2011. "The Stochastic Convergence of CO 2 Emissions: A Long Memory Approach," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 49(3), pages 367-385, July.
    35. Johansen, Soren, 1988. "Statistical analysis of cointegration vectors," Journal of Economic Dynamics and Control, Elsevier, vol. 12(2-3), pages 231-254.
    36. Duro, Juan Antonio & Alcántara, Vicent & Padilla, Emilio, 2010. "International inequality in energy intensity levels and the role of production composition and energy efficiency: An analysis of OECD countries," Ecological Economics, Elsevier, vol. 69(12), pages 2468-2474, October.
    37. John Byrne & Job Taminiau, 2016. "A review of sustainable energy utility and energy service utility concepts and applications: realizing ecological and social sustainability with a community utility," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 5(2), pages 136-154, March.
    38. Ondraczek, Janosch & Komendantova, Nadejda & Patt, Anthony, 2015. "WACC the dog: The effect of financing costs on the levelized cost of solar PV power," Renewable Energy, Elsevier, vol. 75(C), pages 888-898.
    39. Georg Zachmann, 2005. "Convergence of Electricity Wholesale Prices in Europe?: A Kalman Filter Approach," Discussion Papers of DIW Berlin 512, DIW Berlin, German Institute for Economic Research.
    40. Bunn, Derek W. & Gianfreda, Angelica, 2010. "Integration and shock transmissions across European electricity forward markets," Energy Economics, Elsevier, vol. 32(2), pages 278-291, March.
    41. Morvaj, Boran & Evins, Ralph & Carmeliet, Jan, 2016. "Optimization framework for distributed energy systems with integrated electrical grid constraints," Applied Energy, Elsevier, vol. 171(C), pages 296-313.
    42. Sila Kiliccote & Daniel Olsen & Michael D. Sohn & Mary Ann Piette, 2016. "Characterization of demand response in the commercial, industrial, and residential sectors in the United States," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 5(3), pages 288-304, May.
    43. Markandya, Anil & Pedroso-Galinato, Suzette & Streimikiene, Dalia, 2006. "Energy intensity in transition economies: Is there convergence towards the EU average?," Energy Economics, Elsevier, vol. 28(1), pages 121-145, January.
    44. Joe L. Lane & Simon Smart & Diego Schmeda‐Lopez & Ove Hoegh‐Guldberg & Andrew Garnett & Chris Greig & Eric McFarland, 2016. "Understanding constraints to the transformation rate of global energy infrastructure," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 5(1), pages 33-48, January.
    Full references (including those not matched with items on IDEAS)

    Citations

    Citations are extracted by the CitEc Project, subscribe to its RSS feed for this item.
    as


    Cited by:

    1. Nyangon, Joseph & Byrne, John, 2018. "Diversifying Electricity Customer Choice: REVing Up the New York Energy Vision for Polycentric Innovation," MPRA Paper 91486, University Library of Munich, Germany.
    2. Brocks, Annette & Nyangon, Joseph & Taminiau, Job, 2016. "Utility 2.0: A multi-dimensional review of New York’s Reforming the Energy Vision (REV) and Great Britain’s RIIO utility business models," MPRA Paper 91489, University Library of Munich, Germany, revised 30 Sep 2016.
    3. Agbemabiese, Lawrence & Nyangon, Joseph & Lee, Jae-Seung & Byrne, John, 2018. "Enhancing Climate Finance Readiness: A Review of Selected Investment Frameworks as Tools of Multilevel Governance," MPRA Paper 91488, University Library of Munich, Germany.
    4. Joseph Nyangon & John Byrne, 2023. "Estimating the impacts of natural gas power generation growth on solar electricity development: PJM's evolving resource mix and ramping capability," Wiley Interdisciplinary Reviews: Energy and Environment, Wiley Blackwell, vol. 12(1), January.

    Most related items

    These are the items that most often cite the same works as this one and are cited by the same works as this one.
    1. Dayong Zhang and David C. Broadstock, 2016. "Club Convergence in the Energy Intensity of China," The Energy Journal, International Association for Energy Economics, vol. 0(Number 3).
    2. Kim, Young Se, 2015. "Electricity consumption and economic development: Are countries converging to a common trend?," Energy Economics, Elsevier, vol. 49(C), pages 192-202.
    3. Jianhuan Huang & Yantuan Yu & Chunbo Ma, 2018. "Energy Efficiency Convergence in China: Catch-Up, Lock-In and Regulatory Uniformity," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 70(1), pages 107-130, May.
    4. Ekaterina Dukhanina & Olivier Massol, 2017. "Spatial Integration of Natural Gas Markets A Litterature Review," Working Papers hal-03187890, HAL.
    5. Bastianin, Andrea & Galeotti, Marzio & Polo, Michele, 2019. "Convergence of European natural gas prices," Energy Economics, Elsevier, vol. 81(C), pages 793-811.
    6. Ivanovski, Kris & Awaworyi Churchill, Sefa & Smyth, Russell, 2018. "A club convergence analysis of per capita energy consumption across Australian regions and sectors," Energy Economics, Elsevier, vol. 76(C), pages 519-531.
    7. Karakaya, Etem & Sarı, Erkam & Alataş, Sedat, 2021. "What drives material use in the EU? Evidence from club convergence and decomposition analysis on domestic material consumption and material footprint," Resources Policy, Elsevier, vol. 70(C).
    8. Growitsch Christian & Nepal Rabindra & Stronzik Marcus, 2015. "Price Convergence and Information Efficiency in German Natural Gas Markets," German Economic Review, De Gruyter, vol. 16(1), pages 87-103, February.
    9. Mariam Camarero & Juana Castillo & Andrés Picazo-Tadeo & Cecilio Tamarit, 2013. "Eco-Efficiency and Convergence in OECD Countries," Environmental & Resource Economics, Springer;European Association of Environmental and Resource Economists, vol. 55(1), pages 87-106, May.
    10. Rafael Morales-Lage & Aurelia Bengochea-Morancho & Mariam Camarero & Inmaculada Martínez-Zarzoso, 2017. "Stochastic and club convergence of sectoral CO2 emissions in the European Union," Working Papers 2017/01, Economics Department, Universitat Jaume I, Castellón (Spain).
    11. Belloc, Ignacio & Molina, José Alberto, 2023. "Are greenhouse gas emissions converging in Latin America? Implications for environmental policies," Economic Analysis and Policy, Elsevier, vol. 77(C), pages 337-356.
    12. Mariam Camarero & Juana Castillo-Giménez & Andrés Picazo-Tadeo & Cecilio Tamarit, 2014. "Is eco-efficiency in greenhouse gas emissions converging among European Union countries?," Empirical Economics, Springer, vol. 47(1), pages 143-168, August.
    13. Mahamat Hamit-Haggar, 2019. "Regional and sectoral level convergence of greenhouse gas emissions in Canada," Journal of Environmental Economics and Policy, Taylor & Francis Journals, vol. 8(3), pages 268-282, July.
    14. Nicholas Apergis & Christina Christou, 2016. "Energy productivity convergence: new evidence from club converging," Applied Economics Letters, Taylor & Francis Journals, vol. 23(2), pages 142-145, February.
    15. Apergis, Nicholas & Payne, James E., 2017. "Per capita carbon dioxide emissions across U.S. states by sector and fossil fuel source: Evidence from club convergence tests," Energy Economics, Elsevier, vol. 63(C), pages 365-372.
    16. Bhattacharya, Mita & Inekwe, John N. & Sadorsky, Perry, 2020. "Consumption-based and territory-based carbon emissions intensity: Determinants and forecasting using club convergence across countries," Energy Economics, Elsevier, vol. 86(C).
    17. Ivanovski, Kris & Awaworyi Churchill, Sefa, 2020. "Convergence and determinants of greenhouse gas emissions in Australia: A regional analysis," Energy Economics, Elsevier, vol. 92(C).
    18. Bhattacharya, Mita & Inekwe, John Nkwoma & Sadorsky, Perry & Saha, Anjan, 2018. "Convergence of energy productivity across Indian states and territories," Energy Economics, Elsevier, vol. 74(C), pages 427-440.
    19. Erdős, Péter, 2012. "Have oil and gas prices got separated?," Energy Policy, Elsevier, vol. 49(C), pages 707-718.
    20. Mulder, Peter & de Groot, Henri L.F. & Pfeiffer, Birte, 2014. "Dynamics and determinants of energy intensity in the service sector: A cross-country analysis, 1980–2005," Ecological Economics, Elsevier, vol. 100(C), pages 1-15.

    More about this item

    Statistics

    Access and download statistics

    Corrections

    All material on this site has been provided by the respective publishers and authors. You can help correct errors and omissions. When requesting a correction, please mention this item's handle: RePEc:bla:wireae:v:6:y:2017:i:3:n:e238. See general information about how to correct material in RePEc.

    If you have authored this item and are not yet registered with RePEc, we encourage you to do it here. This allows to link your profile to this item. It also allows you to accept potential citations to this item that we are uncertain about.

    If CitEc recognized a bibliographic reference but did not link an item in RePEc to it, you can help with this form .

    If you know of missing items citing this one, you can help us creating those links by adding the relevant references in the same way as above, for each refering item. If you are a registered author of this item, you may also want to check the "citations" tab in your RePEc Author Service profile, as there may be some citations waiting for confirmation.

    For technical questions regarding this item, or to correct its authors, title, abstract, bibliographic or download information, contact: Wiley Content Delivery (email available below). General contact details of provider: http://www.blackwellpublishing.com/journal.asp?ref=2041-8396 .

    Please note that corrections may take a couple of weeks to filter through the various RePEc services.

    IDEAS is a RePEc service. RePEc uses bibliographic data supplied by the respective publishers.