Gas-fired Power Generation: “Cheaper, Cleaner, Reliable”
Regular readers of Natural Gas Europe are no doubt familiar with the struggles faced by natural gas-fired power generators in Europe, as they have seen dwindling returns on their investments because many utilities, for now, are burning much cheaper coal to back up the intermittency of renewables.
In North America, however, natural gas has been steadily displacing coal-fired plants.
Within that context, a session at the North American Gas Forum in Washington, DC was dedicated to the demand that could be expected given the growth of gas-fired generation.
Session Chair Rick Smead, Director Energy, Navigant Consulting, provided an overview of what he termed a very dynamic market. For one, he stated that natural gas-fired capacity now made up 39% of total generating capacity, showing that gas had dominated new growth in capacity in the last 2 decades.
He remarked, “Coal is less than 30% of capacity – that's before further retirements.
"Meanwhile, gas has partnered in various ways with wind and solar; together they've really dominated new capacity growth. Also, because fast-ramping gas plants can be the thing to fill the gap for intermittent renewables,” he explained.
Mr. Smead noted that environmental concerns had been putting lots of pressure on older coal-fired plants to retire, replaced to some extent by gas-fired generation.
“From 1990 to 2013, natural gas-fired generation has represented 71% of what's been added; wind is another 14%; solar's another 1%. Overall, 86% of what's been added has been gas, wind or solar.”
In terms of actual use, he said enterprise decided what would run based on the marginal costs, mostly of fuel. He explained: “What that means is, a lot of gas plants don't run very much – they don't run nearly as much as they could.”
For gas to be used sustainably, he said, really required finding other ways to cause gas plants to run more. The power industry being very sensitive to price was very bad news for the gas industry, noted Mr. Snead.
“Gas-fired generation acts in many markets as an automatic governor on the market: prices go up, a lot of gas drops off the grid; prices go down, a lot of gas comes back on.”
He recounted an example from 2012, when very low gas prices caused gas-fired generation to surge and balance the market, which he said was not a bad function for assuring the market.
While coal and gas had converged, coal was cheaper, but superior efficiency (50-60% higher) from combined cycle gas turbines meant that natural gas generation could be cheaper than Eastern coal in North America.
Swings in demand, he explained, could result in demand differences of up to 6BCF/day – almost equivalent to the amount of LNG export anticipated from North America by the industry.
Regarding retirement of old coal plants, he said, “If enough coal plants get pushed off the grid, the remaining coal plants can only run so much, so when they hit their upper operating limits that pushes load over to gas, which is what's tending to happens in some markets and is expected to happen in the winter, causing gas fired generation to be needed in the winter.”
According to Mr. Smead, many utilities and market managers were nervous about having such a high reliance on natural gas. Meanwhile, pipeline capacity was a concern.
A presentation by Jacob Hollinger, Partner, McDermott, Will & Emery and former Acting Air Chief for the Environmental Protection Agency's Region 2 law department, touched on how the EPA's rules/actions affect power plants.
To set the context, he said there were three themes that stood out: 1) The regulations were harder on coal than on gas, as gas plants had any easier time complying; 2) there was a tremendous amount of uncertainty about what would happen (which was favorable to coal), including judicial uncertainty, or greenhouse gas regulations; 3) regulatory trends like petitions under the Clean Air Act, energy efficiency programs, and nuisance lawsuits.
Emphasizing that there was no “war on coal,” Mr. Hollinger spoke of trends that could prove important, like downwind states' measures like those in Pennsylvania and New Jersey, when one state's power plant was harming the air quality of a neighboring state's.
“The neighbors of a Pennsylvania power plant could sue that power plant under torte law - not under the Clean Air Act – saying that particulate emissions from the plant were landing on their property, damaging property values and they could bring a class action suite seeking money damages for that,” he explained, adding that the Clean Air Act had not pre empted such cases.
He revealed, “There are enormous pressures on coal generators even without EPA.”
Mr. Hollinger stated that there was an incredible amount of uncertainty as to how the EPA would act on existing power plant emissions of CO2 and whether that could survive judicial scrutiny. By June 2014, he reported, the EPA would issue a proposal on existing plants. “In the interim, there's a tremendous opportunity to get involved and influence the outcome,” he said.
A representative from the largest utility in New England proceeded to weigh in.
Mr. Camilo Serna, Vice President Corporate Strategy, Northeast Utilities, said that his company was primarily a transmission and distribution company with approximately 3.5 customers; only 600,000 of them were gas customers. He pledged to speak about what he termed this “significant gap.”
He recounted: “About 5 years ago when we started seeing the trends in the gas prices, when we saw the shale resources that are in close proximity to the northeast, and saw that gas prices were disconnected from fuel oil, we saw there was an opportunity in New England for increasing the use of gas, especially because our customers still use a lot of fuel oil for their heating needs.”
Residential customers, he showed, could save on average around USD 1,800 per year by switching to gas, yet, for example, only around 31% of residential heating market in Connecticut used gas; the figure for Massachusetts was somewhat higher.
One of the cornerstones of the state's strategy was expansion of the gas system by about 50% over the next 10 years, according to Mr. Serna, who said that while the plan was flexible, there were barriers like the upfront costs to customers. “At the end of the day, we won't get to the numbers I've indicated unless we expand pipeline capacity,” he commented, showing the projected growth in demand coming with the addition of natural gas customers.
But the benefits, he outlined, included savings, jobs and environmental benefits.
“Cheaper, cleaner, reliable” was the mantra of Richard Kruse, Vice President of Regulatory Affairs and FERC Chief Compliance Officer, Spectra Energy, who said that those elements were the drivers needed for infrastructure build-out. His company, he said, was involved in developing infrastructure for its customers and that it was adding capacity in numerous US states.
“The one area that is difficult from an electric generation standpoint is New England,” he reported. “It boils down to price signals.”
In New England, he recalled, the Algonquin pipeline, which extended from Texas all the way up to Boston, delivered gas flow. “Ten years ago, New England thought it was going to be at the head of the pipeline, because we had gas coming in from maritimes, LNG imports coming in from Canada, Suez, and all of this gas was going to flow west to serve markets – major changes were made in Algonquin to facilitate that east to west flow.
“And then the market changed,” he revealed. “Cheap gas is here and it's in the Marcellus shale. Basically, the market wanted to get their gas from the west to the extent they could.”
Gas was seeing great growth as a fuel source in New England, according to Mr. Kruse. “In the year 2000, it counted for about 15% of the electricity; in 2012, 52% - a dramatic growth, which has resulted in records in terms of throughput for gas-fired generation.”