Navigant Research Blog

Natural Gas Generation Displacing Diesel in India

— February 7, 2017

Recent developments indicate that natural gas power generation is set to displace growing amounts of diesel in India. Though natural gas represents just 8% of installed capacity, demand is set to more than triple in the 2012-2030 timeframe according to Indian government forecasts. While some of the extra supply will come from increased domestic production, much will come from the doubling of liquefied natural gas (LNG) import capacity through 2025. At the same time, local distribution piping is expanding its reach—one customer at a time.

Natural gas is becoming more attractive for a number of reasons. One is cost; although diesel and coal are both relatively inexpensive and heavily relied on for power, the increased natural gas supplies are expected to bring prices down. The globalization of Asian LNG markets should also bring more stability to gas prices as the fuel moves away from oil indexation to more market-based pricing in Asia. Perhaps more importantly, natural gas has significantly lower emissions than diesel and coal when used for power generation—measured via particulate emissions and greenhouse gases. Alongside renewables, natural gas is seen as a key tool in fighting air pollution in India, which has half of the world’s 20 worst polluted cities.

Diesel generators are one key cause for pollution. Diesels are chosen because they are cheap, fuel is readily available, and they can be relied on to operate when India’s relatively poor grid goes down. (According to the World Economic Forum, India ranks just above the bottom third in quality of electricity supply, though this ranking is slowly improving.) Diesel gensets are ubiquitous in India, with an estimated 90 GW of diesel generators as of 2014 and about 4% of all consumed diesel going to gensets. There is a drive for renewables to displace much of this diesel use, and they are well-positioned to do so due to falling prices of technologies like PV. But where natural gas becomes available, it may often be the preferred choice, especially where reliable power is needed after the sun stops shining.

Proactive Outreach

Diesel remains the de facto choice as a reliable and established solution for residential, commercial, and industrial customers alike. Thus, for distributed natural gas to thrive in India, proactive outreach is required. These companies have recently made headlines with moves in distributed natural gas:

  • Indraprastha Gas Ltd., a gas supplier in Delhi, recently pitched gas gensets to housing complexes and factories as a cost-saving measure. The company says natural gas generation can offer power at 12 Rs/kWh ($0.18) compared to diesel 18 Rs/kWh ($0.27). The company is also in talks to provide electricity as a service.
  • Last year, fuel cell maker Bloom Energy announced a partnership with state-owned GAIL, India’s leading natural gas company. An initial project was announced in Bangalore, presumably with many more to come.
  • Dual-fuel gensets or conversions may also be an attractive option. Genset manufacturers like Caterpillar and Cummins offer gensets or retrofit kits that allow compression-ignited diesel generators to displace half or more of their fuel with natural gas. As natural gas distribution expands, this trend is expected to spread.

As these and other value chain players find new opportunities to supply power or generation equipment, more natural gas infrastructure may follow in India. In this under-electrified growing economy that represents 17% of the world’s population, massive opportunity beckons to the prepared.


Beyond Non-Wires Alternatives: Growing Opportunities in Natural Gas for Non-Pipes Alternatives

— January 5, 2017

More utilities are employing non-wires alternatives to avoid the construction of traditional transmission and distribution (T&D) infrastructure. These novel solutions incorporate demand response (DR), advanced controls, or various distributed energy resources (DER) to save infrastructure costs. Alongside this trend in electricity T&D, a parallel phenomenon is developing in natural gas T&D—a set of solutions Navigant Research calls non-pipes alternatives. Such alternatives utilize natural gas much closer to its point of origin, often by generating electricity that can then be used onsite or nearby. Pressure to avoid large infrastructure projects is one driver of this trend, but technological improvements and regulatory developments are also expected to contribute momentum in the coming years.

T&D projects in both electricity and natural gas face growing hurdles. Officials in Germany, for example, are having a hard time gaining approval for electrical transmission lines to link areas with cheap wind power to power-hungry cities, thanks to a mix of red tape and NIMBYism. Pipelines face similar hurdles in the gas-rich and densely populated parts of the eastern United States. More broadly, fuel pipelines of any sort are becoming more identifiable targets for anti-fossil fuel activists, as seen in the protests organized against the Dakota Access Pipeline in late 2016. Companies across the energy value chain are cutting costs as cheap fuel trims margins, which can also draw extra scrutiny to big infrastructure projects.

Market-Changing Technologies

Technological developments are also driving non-pipes alternatives. Among the prime movers that generate electricity, those that can flexibly vary output are often most attractive for these applications. With their low cost and fast ramping times, natural gas generator sets (gensets) may see the most opportunities, though there will also be opportunities for turbines, microturbines, and fuel cells. Though most of these technologies are mature, developments in software and controls make new business models available to them. Traditional DR providers and other entities adept at reading market signals from both the electricity and natural gas markets are positioned to capitalize on this trend. And thanks to the growth in intermittent energy resources and DER, utilities and software companies alike are working toward ever more flexible and responsive smart grids (both electric and natural gas).

Developments in DER regulations should also propel non-pipes alternatives. Groundbreaking DER proceedings in New York and California are establishing frameworks to fairly compensate DER for their locational value. Such frameworks could help distributed natural gas generation since the compact technology can be placed just about anywhere. A proposed ruling by the US Federal Energy Regulatory Commission would also allow fast starting resources (like gensets) to set market prices for electricity. Developments like these are expected to more fairly reward distributed generation that can be quickly dispatched in optimal locations. Developers/operators like IMG Midstream and genset manufacturers like Cummins, Caterpillar, and GE are among the potential beneficiaries from these developments.

As grids become congested and locational benefits are rewarded, opportunities are expected to grow for non-pipes alternatives at the many points where the natural gas and electric transmission grids cross paths. Natural gas storage capacity in the United States amounts to 4.8 quadrillion Btu, enough to power the country for almost 2 months—an underappreciated storage resource. If hydrogen or syngas injection takes hold on a large scale, the electric and natural gas grids could become a dynamic two-way resource that would boost efficiency and resiliency in ways never before seen.


New Cummins and Tangent Joint Venture Enters the Heart of the Energy Cloud

— November 14, 2016

PipelineA joint venture has entered the Energy Cloud, pioneering new value propositions for stakeholders across the energy value chain. Dubbed edgeGEN, this offering allows energy retailers and commercial and industrial (C&I) facilities to capitalize on real-time economic opportunities on the grid.

edgeGEN consists of Cummins’ natural gas generator sets (gensets) equipped with Tangent Energy’s Tangent AMP distributed energy resource management system (DERMS). The system’s key focus is predicting (and reacting to) customer coincident peak demand, a rare occurrence that can nonetheless represent a significant portion of an electric bill. By focusing on these high-value instances, edgeGEN has the potential to provide high economic value to the grid with a small amount of fuel.

The business case for the product includes value propositions on both sides of the meter. Municipal utilities and energy retailers, the exclusive channel partners for the offering, save costs by incentivizing customers toward desired behavior like cutting demand during peak hours. C&I customers can be rewarded monetarily while in some cases also realizing the benefits of resilient power to ride through outages. Bringing it all together is a financing structure that typically requires no money down from the host facility.

Established Technology in a New Skin

Gensets remain the de facto backbone of many onsite generation systems for several reasons. They are dispatchable quickly any time of day, can have the cheapest levelized cost of energy of any distributed generation (DG) source, and can reliably deliver 1,000 times or more annual energy per square meter than solar PV. They account for 40% of the average microgrid generation capacity in Navigant Research’s Microgrid Deployment Trackermore than any other technology.

Though some argue that the dramatic cost declines in developing technologies like solar plus storage will lead to the displacement of gensets, we see this convergence as a key opportunity. As intermittent renewables grow, there will be increasing demand for fast-ramping gas generation, as noted in recent reports about California by the National Renewable Energy Laboratory (NREL) and the Union of Concerned Scientists. Additionally, according to a report funded by the German government, distributed natural gas generation must play a growing role in thermal energy storage. Both on- and off-grid, growing access to cheap natural gas is only accelerating this trend.

Offerings like edgeGEN have room to grow. Other DER and demand response can be integrated on the same platform, one that has flexibility to evolve alongside the coming growth in transactive energy. Municipal utilities and energy retailers, especially in areas with high capacity and transmission tags, should consider the value of incorporating smart gensets and complementary DER. Facility owners should consider the offering while also considering the true value of resilient power as a potential bonus. With growing renewables penetration, persistently cheap natural gas, and regulatory bodies recognizing the value of dispatchable DG, the opportunities in this space are promising.


As Natural Gas Electricity Generation Grows, Risks and Opportunities Emerge for Energy Consumers

— October 26, 2016

Natural gas is becoming increasingly vital to US electricity generation. With vast new resources made available by hydraulic fracturing, use of the fuel is growing across various sectors, especially in the area of electricity. Although coal has led electricity generation since before 1950, natural gas finally took the highest share for most of 2015 and almost all of 2016 (as seen in the chart below).

While many welcome the growth of this cheap, low-emissions fuel, some risks are arising for energy consumers. Put simply: a system that depends heavily on natural gas is more susceptible to supply shocks. With slumping production and demand from the electricity sector, prices are already trending up. The monthly Henry Hub price reached $2.99/MMBtu in September, the highest in 20 months. This may be exacerbated by a colder winter that is driving predictions of higher gas and electricity prices and volatility compared to last year. And this week marks 1 year since the largest natural gas leak in US history hit southern California, the fallout of which still reminds us how unforeseen disasters can shock supplies.

This type of volatility can affect everything from household budgeting to the balance sheets of multi billion-dollar utilities. Notably, commercial and industrial electricity consumers can be heavily affected to the tune of millions of dollars by volatility in gas prices, electricity prices, or both. Thankfully, advances in alternative generation options exist to mitigate these risks.

Monthly Net Electricity Generation, All Sectors (Jan 2011 – Dec 2016)

AForni Blog

(Source: US Energy Information Administration)

Alternative Generation Advances

Renewables include technology solutions like wind and solar, and (in this context) other zero-emissions complements like battery storage and demand response. These technologies are being broadly embraced thanks to government support, cost declines, and emissions reductions initiatives. The dramatic growth in corporate renewable power purchase agreements is one of the most powerful examples of the Energy Cloud in action.

Onsite gas-fueled generation may seem subject to the same market vicissitudes affecting natural gas, but it has some key advantages, even over renewables. First, customers installing fuel cells, gensets, or microturbines can purchase long-term gas contracts that will guarantee a certain rate for gas (and therefore electricity)—a key risk mitigation tool. Compared to centralized generation, onsite gas generation is installed faster and with less regulatory risk, while also eliminating the transmission and distribution energy losses (and risks) of the electric grid. Compared to renewables, these technologies can be installed in a far smaller footprint and, crucially, generate electricity without relying on the wind or sun.

Onsite dual-fuel generation consists of gensets, turbines, or microturbines that can operate on diesel and natural gas (and often, other fuels). Such equipment has many of the same advantages of onsite gas-fueled generation, with the added bonus of accepting multiple fuel types. While natural gas is often the preferred fuel (due to emissions requirements and lower cost), shocks to natural gas supply and/or price can make an alternate fuel like diesel favorable, if only for a short period. Diesel can also be stored onsite, ensuring access in a major catastrophe. This technology has been most embraced in the US oil & gas sector, but has growing applications both stateside and abroad. Watch for the coming revolution in liquefied natural gas to open new opportunities in flexible generation, too.

Natural gas will be an important electricity fuel for a long time to come. But in an era with baseload in decline and renewables on the rise, these tools should not only mitigate natural gas risk, but also build flexibility into an electric grid that sorely needs it.


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