Navigant Research Blog

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 & 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.


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.


Should We Worry About Carbon Dioxide Emissions From Natural Gas Surpassing Coal?

— September 13, 2016

Smoke StacksAccording to the US Energy Information Administration, in 2016, CO2 emissions from natural gas are expected to surpass coal emissions in the United States for the first time since 1972. As CO2 emissions from natural gas increase due to growing natural gas consumption in the energy sector, major concerns have developed among environmental groups and others about natural gas becoming a threat to climate change. However, to generate the same amount of power, natural gas emits only 55% of the CO2 compared to coal. As natural gas displaces coal, CO2 emissions that could have come from coal will be cut by half. As long as the growth of natural gas is at the expense of coal consumption, it will help the fight against climate change.

It would be ideal if both natural gas and coal could be replaced with renewable energy such as solar and wind. However, when the sun doesn’t shine and wind doesn’t blow, electricity still needs to be generated. Even with cutting edge technology on energy storage, demand-side management, and energy efficiency, the need for stable electricity generation from reliable sources cannot be fully eliminated. Natural gas is by far the best option for such a reliable source due to its affordability and abundance in the United States. Besides the benefit of fewer  emissions, the price of natural gas is also competitive with coal. The United States is also the largest natural gas producer in the world thanks to the boom of shale gas. In general, as more renewable generation capacity will be added than fossil fuel capacity this year (and likely in the next few years), natural gas is essential as a backstop for grid operators to address the intermittency of renewable energy.

The Problem of Methane Leakage

Nevertheless, natural gas is not perfect. The methane leakage problem could seriously undermine the climate benefit of natural gas. At the same time, the US Environmental Protection Agency is making crucial progress in setting regulations on restricting methane leakage. With proper regulatory incentives and continuing technology improvement, the effects of methane leakage can be contained to make natural gas a viable complement to a lower carbon future.


Europe’s Energy Transition Megatrends and Tipping Points, Part V: Globalisation and Regionalisation of Energy Resources

— September 2, 2016

Oil and Gas ProductionJan Vrins coauthored this post.

In our initial blog on Europe’s energy transition, we discussed seven megatrends that are fundamentally changing how we produce and use power. Here we discuss how the globalisation and regionalisation of energy resources is fundamentally changing the European energy industry.

What’s Happening?

The EU is actively aiming to deliver on Europe’s 2030 climate and energy targets while ensuring security of supply and affordable prices. The EU also seeks to be a world leader in renewable energy. Achieving these goals requires a transformation of Europe’s electricity system. To assist in this transformation, the EU must achieve a balance of meeting consumers’ expectations, delivering benefits from new technologies, and facilitating investments in low-carbon generation while also recognising the interdependence of member states. A critical part of this initiative is connecting isolated national and regional electricity systems to secure supply to help achieve a truly integrated EU-wide energy market—a key enabler for the continent and one that goes well beyond precursors such as Nord Pool. While the United Kingdom’s vote to leave the EU raises a number of questions about future policy, it is too early to say what effect Brexit will have on the United Kingdom’s participation in the EU’s future single energy market. (The United Kingdom has, however, been an enthusiastic proponent of this to date.) What is clear is that a focus on greater levels of interconnection (both offshore and onshore) and energy efficiency will continue to be necessary aspects of EU energy policy—and ones that receive much scrutiny.

To get access to the necessary energy supply and resources, more regions, countries, energy markets, and utilities—including those in Europe—are looking beyond the traditional borders of their energy business and territory.

What’s Driving This Change?

The main drivers behind this globalisation and regionalisation of energy resources are:

  • Access to cheaper natural gas globally
  • Accelerated shift of generation resources to renewables, which requires greater system flexibility to maintain security of supply
  • Economic and political imperatives for energy import and export

Access to Cheap Natural Gas Globally

Driven by a technology breakthrough applied in the field, shale gas has transformed the North American gas market and stands poised to significantly affect the global gas market in the future. On February 24, 2016, for the first time in history, liquefied natural gas (LNG) from North America was exported from the contiguous United States—from the Cheniere Sabine Pass facility in Louisiana—to Europe, a historic moment in the North American gas industry.

Globally diverse sources of natural gas and increased movement of these sources—in the form of LNG by ship—is becoming increasingly prevalent from places far from one another. As Australia, the United States, and Canada follow Qatar with plans to export LNG in large volumes, the global gas market is poised for a renaissance. Although the LNG industry has been a victim of its own success as prices have declined, the growing availability of gas to global markets is set to impact places that never previously had access. This movement is bringing with it the opportunity for new gas-powered industries such as petrochemicals and an increased availability of cleaner gas-fired power generation to people and places around the world.

Extensive European infrastructure for gas transmission, including pipelines and new LNG facilities, is helping ensure that cheap gas will be available in most parts of Europe. There is a lag effect as to how this impacts gas generation development; however, in the short to medium term, it at least underpins gas’ ability to remain a key fuel source for heating, industrial use, and flexible power generation. While the latter use may fly in the face of carbon targets, with questions around new nuclear and other baseload low-carbon generation, the net reduction from replacing coal with gas is still significant and may prove to be at least a convenient bridging arrangement.

Accelerated Shift of Generation Resources to Renewables

In Part III of this series, we discussed the changing generation mix across Europe. Virtually all net growth in recent years has come from renewables. To achieve this while managing the system security of supply requires much greater flexibility in the way the electricity systems are managed across Europe. Flexibility is essential and the key underpinnings of this are interconnection, storage, and demand response. To date, the most prevalent of these has been the rapid growth in interconnection—for example, the import of French nuclear power to support Germany’s solar boom and the HVDC interconnection to enable the United Kingdom and Denmark to rapidly develop their wind generation sector. It can be argued that without access to hydro reserves from Norway and Sweden, neither country would be able to accelerate their current offshore wind program. This interconnectedness is a strength of the European system, but it also means that, in effect, each nation relies on others for their ultimate security of supply. In the future, the impact of storage will complement this and aid renewables integration and system stability. Storage and the ongoing development of demand response will also lead to local regionalisation, whereby markets at a more local level are necessary to deal with increasingly decentralized generation and the local flexibility enabled by smarter metering.

Economic and Political Imperatives

The third driver may be obvious to some but is the most challenging to achieve in practice in many ways. Greater affordability for consumers across Europe is promoted through a more regional approach to energy supply. However, macroeconomic theory and national politics do not always pull in this same direction. It sounds simple for Norway to increase its exports to the United Kingdom via a new interconnector as both countries gain overall; however, if this leads to higher wholesale prices in Norway through a reduced surplus, then consumers may see an impact on their retail price. To date the economic efficiency of Europe’s market coupling has proven a sound platform for rapidly improving the regionalisation of energy resources across the continent while political will has held firm in most respects. Some initiatives such as the North Sea Grid may work on a region-wide basis yet do not translate into a commercial rationale that leads to specific profitable projects for investors. Given the importance of a united energy policy for maintaining affordability and energy security across the continent, this needs to remain a critical area of policy and regulatory attention as 2030 targets come firmly into focus.

So What Does This Mean?

It is worth reminding ourselves of the underlying objectives as defined by Europe’s Energy Union:

  • Electricity systems will become more reliable, with lower risk of blackouts.
  • Money will be saved by reducing the need to build new power stations.
  • Consumers’ increased choice will put downward pressure on household bills.
  • Electricity grids will be able to better manage increasing levels of renewables, particularly variable renewables like wind and solar.

Looking forward, the EU market, national policymakers, and utilities first need to adapt their long-term resource plans and incorporate regional scenarios for power supply, while also building in a rapidly changing fuel resource mix toward renewables and natural gas. Second, they must think outside the box with regard to securing fuel or access to renewables well beyond their traditional territory borders. Third, to effectively develop system plans, the planning processes need to take into account the entire regional transmission system. Regional entities should find a way to bring together players such as distribution network operators, municipalities, and other smaller industry players to ensure their needs are also addressed and more holistic solutions are presented. Finally, to facilitate and enhance emerging market offerings such as enterprise information management, the planning toolkit needs to expand to better address the challenges of large-scale renewables integration across multiple regions.

This post is the sixth in a series in which we discuss each of the power industry megatrends and the impacts (“so what?”) in more detail. Our next blog will be about merging industries and new entrants. Stay tuned.

Learn more about our clients, projects, solution offerings, and team in our Navigant Energy Practice Overview.


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