Navigant Research Blog

U.S. Energy Mix Shifts toward Renewables, Natural Gas

— April 20, 2015

The U.S. Energy Information Administration (EIA) has released figures for scheduled additions and retirements of generation resources in the United States during 2015. According to the EIA, the United States is expected to add 9.8 GW of wind, 6.3 GW of natural gas power plants, and 2.2 GW of solar—all of which make up 91% of the total 20 GW that is expected to come online this year. No coal plants are scheduled to come online this year, and 12.9 GW of coal and 1.98 GW of natural gas will be retired. Not only does this signal a shift in the U.S. energy mix, but it also indicates that there is a great deal of investment in wind, gas, solar, and even nuclear in the U.S. market. That said, 12 GW of this capacity is variable and will require some type of firming or integration. Often, this balancing is executed by gas power plants, which are more flexible than nuclear plants, for example.

Sources: U.S. Energy Information Administration, Electric Power Monthly
Note: Other renewables include hydroelectric, biomass/wood, and geothermal.

Overall, a healthy amount of capacity is slated to come online in the United States, thanks to market signals such as the Production and Investment Tax Credits. That said, what can we expect to happen in response to the difference between generation and load if the market is not encouraging investment in generation assets?

Shrinking in Texas

I learned at the ERCOT Market Summit that Texas is in a tenuous position with a current reserve margin of 15.7% in 2015 that is expected to shrink to 7.3% by 2024. The reserve margin is a reflection of a grid’s ability to cope with unpredictable but foreseeable events—such as a generator tripping offline or a sudden spike in load. These are not uncommon occurrences, but forecasting them is impossible; hence, the margin.

In Texas, the shrinking reserve margin is a function of power plant retirements and an increase in overall load. In addition, Texas is one of the most deregulated energy markets in the world. This means that it is very unlikely that the state would employ any type of market intervention, such as a mandate or a subsidy, to encourage investment. Instead, it is up the market to adapt in order to embolden the right participant behavior. So far, as evidenced by the shrinking margin, the market is not sending the right signals to encourage investment in power plants.

Markets designers in deregulated markets already looking ahead. Texas has decided against a capacity market and is instead developing reserve products for short-, medium-, and long-term reserves. These products are unlikely to offer the lucrative and consistent returns natural gas power plant developers are looking for, but they should open the door for alternative technologies, including storage.

 

In Golden Age, Natural Gas Becomes Generation Workhorse

— March 9, 2015

The promised golden age of natural gas has begun to take hold globally. Fortunately, rising natural gas demand will not require a corresponding increase in infrastructure spending across the United States, according to a recent report from the U.S. Department of Energy. These findings hold even as the U.S. electric power sector—currently the largest consumer of natural gas in the country—saw generation from natural gas replace that of coal in recent months. This corresponds with a sharp increase in demand for natural gas from multiple end-use sectors.

With the Henry Hub reference price for natural gas in the United States lingering below $5 per million Btu (mmBtu) since the early part of 2014, a demand surge is expected to continue across the power generation sector.

Renewables and Gas

The United States, already the largest consumer of natural gas in the world, is expected to see a 33% increase in demand by 2040, according to the U.S. Energy Information Administration’s Annual Energy Outlook 2014 reference case. Growth is expected to be 42% for the electric power sector between 2012 and 2040 under the same scenario.

Living up to its promise as a bridge fuel to a low carbon future, natural gas is helping backfill baseload generation, especially in areas where coal plant retirements are highest. The combination of wind or solar power and gas-fired generation, meanwhile, has emerged as an option for states looking for more access to lower-carbon electricity. This hybrid approach is playing out across the expansive areas of the West, where electrical grid transmission bottlenecks have made it difficult to export renewable generation from areas of high productivity (e.g., Wyoming) to population centers on the West Coast, for example.

Not Laying Pipe

The increased use of natural gas in the electric power sector, however, is not without potential challenges. Unlike competing fuels, natural gas is delivered as it is consumed, and cannot be stored onsite like coal. Furthermore, adequate infrastructure is needed to maintain electric system reliability. The investment of $65 billion in new interstate pipeline construction over the past 18 years appears to be sufficient to deliver natural gas from producing regions to end users across the country without substantial new investment.

Unlike the U.S. electrical grid, natural gas power plants and natural gas production are both broadly distributed rather than geographically concentrated, reducing constraints on interstate pipeline capacity. What’s more, lower-cost investment options, such as improving the utilization of existing infrastructure and rerouting gas flows, are far cheaper than building new pipelines.

As the U.S. power sector faces several concurrent transitions—retirement of coal-fired generation, aging electrical transmission infrastructure, and a surge in the use of intermittent renewables—these findings suggest that natural gas will continue its emergence as the workhouse on the modern electrical grid.

 

As Coal Declines, Low-Emissions Engine Plants Spread

— December 22, 2014

In September, the world’s largest reciprocating engine power plant was completed in Jordan.  IPP3, as it’s called, has 38 Wärtsilä 50DF engines, with a total capacity of 573 MW in the extreme desert conditions of Jordan.    The plant uses tri-fuel engines that can run on natural gas, heavy fuel oil, and light fuel oil.  They can start and ramp up to full capacity in less than 10 minutes, and they can do this multiple times a day without any maintenance cost impact.

The modular nature of the plant also allows it to operate at peak efficiency (45%-50%) across its entire output range by shutting down individual engines as needed and leaving others at high load.  In addition, the plant will enable Jordan’s existing turbine plants to operate more efficiently, as they will be used for baseload while IPP3 fills in the gaps where there is fluctuation in demand.

Reliable, Flexible, and (Relatively) Clean

IPP3 is fitted with a nitrate (NOx) control system for reducing emissions and meeting strict environmental health and safety guidelines set by the International Finance Corporation.  The plant follows international requirements for sulfides and particulates as well, and it is expected to produce 35% fewer carbon emissions than an existing steam turbine plant would if both used heavy fuel oil.  IPP3 will also have a close to zero usage of water once gas is employed as fuel, minimizing its environmental footprint.

So what makes this plant important?  It’s important because before IPP3, Jordan’s utility professionals had never contemplated the installation of a reciprocating engine plant, preferring to generate baseload power through combined-cycle gas turbine (CCGT) facilities, which have peak efficiencies of 55% to 60%.  It’s also important because many utility professionals around the world, not just in Jordan, are looking for a solution that is reliable, offers fuel and operational flexibility, is quick-starting and efficient across a wide range of loads, and consumes less water and produces fewer emissions.

Reciprocal Benefits

And, as in Jordan, many other utility professionals are choosing reciprocating engines.  Wärtsilä alone has been installing an impressive number of large gensets recently.  For example, a 175 MW gas engine plant was completed by Wärtsilä in South Africa for Sasol, one of the country’s largest industrial companies, in December 2012.  The company is also in the process of building the 200 MW Pesanggaran Bali power plant, which will be the largest engine-based power plant in Indonesia when it is completed in 2015.

In the United States, Wärtsilä has been contracted to supply a 56 MW Smart Power Generation power plant in Oklahoma, and the company is expected to install a 50 MW plant in Hawaii on the island of Oahu, pending approval of the Hawaii Public Utilities Commission.  There is also a 225 MW plant being proposed in Texas and, reportedly, another 225 MW plant already under construction in Oregon.  All of the plants in the United States will be used to balance wind and solar generation on the grid.  With cheap natural gas, emissions standards, and the grids around the world becoming increasingly unstable, it appears that reciprocating engines’ stock is on the rise.

For more detail on the future of reciprocating engines, please see Navigant Research’s report, Natural Gas Generator Sets.

 

Severe Drought Hastens Hydropower’s Slow Decline

— November 4, 2014

Coal retirements, the shale gas bonanza, post-Fukushima Daiichi nuclear curtailments, the rising adoption of distributed generation, and emerging price parity for solar PV and wind – the dynamic changes affecting electricity grids worldwide are many.  Now, with prolonged droughts affecting leading global economies, like Brazil and California (the world’s seventh and eighth largest economies by gross domestic product [GDP], respectively), a slow decline in the prominence of hydropower is in the mix.

Historically, hydropower has been the primary source of clean and renewable energy in both economies.  Its decline has had a more severe impact on Brazil’s grid, but in both places, this development is expected to continue to coincide with a further rise in gas-fired generation and renewables.  Due to the current cost of renewables, the consequences of this shift may be a rise in greenhouse gas emissions in each country’s electric power sector.

California Copes

With a fleet of 300 dams, California is among the nation’s leaders in hydropower generation.  However, hydro in the state has declined from peaks in the 1950s, when it was responsible for more than half of the state’s generation mix, to just 9% in 2013.  Having prepared for hydro’s decline by broadening its generation mix over the last several decades, the California grid remains mostly insulated from the worst effects of nearly a half decade of severe drought.

California generates around 55% to 60% of its power from natural gas and has seen a 30% increase in gas-fired generation since 2002.  Meanwhile, California’s leading investor-owned utilities across the state – Pacific Gas and Electric (PG&E), Southern California Edison (SCE), and San Diego Gas & Electric (SDG&E) – are on track to meet or exceed their 33% renewable procurement obligations by 2020 under the state’s Renewable Portfolio Standard (RPS) policy.

Brazil Gasps

Facing its worst drought in 40 years, meanwhile, Brazil has been more severely affected by reduced hydropower generation than California.  Currently, the second leading producer of hydroelectric power in the world, trailing only China, Brazil relies on hydro for more than three-fourths of its generation.  According to data published by BP earlier this year, hydropower consumption fell 7% in 2013.

This rapid decline has prompted severe rationing in 19 cities, undermined hydropower generation, and resulted in blackouts across the country.  In the run up to the 2014 World Cup, the Brazilian government provided more than $5 billion to subsidize electric utilities, replacing lost hydroelectric generation with fossil fuel-fired generation, including large amounts of liquefied natural gas.  While this helped stabilize the grid during the event, it has nearly doubled greenhouse gas emissions from the power sector.

Brazil’s experience provides a harsh lesson for drought-stricken areas with a high dependence on hydropower.  Although natural gas is a low-carbon alternative relative to coal-based generation, it may stall or reverse carbon mitigation efforts when used in place of hydropower.  Renewables can help make up the difference, but even with sharp declines in the price of solar PV and wind, they remain far more expensive than hydropower or natural gas.  While both California and Brazil are in a hole with respect to water supply and hydroelectric generation, persistent drought is unlikely to result in a significant increase in new renewables spending without the introduction of new subsidies.

 

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