API positions gas as all-purpose resource for grid reliability
- The American Petroleum Institute and the Brattle Group have released a report extolling natural gas' ability to boost grid reliability and perform services such as frequency response and energy storage in wholesale power markets.
- The study noted that more variable energy resources have been integrated into the nation's power mix and created "reliability gaps" that could be mitigated by natural gas. "When you look at grid reliability, it's not necessarily about diversity of fuels, but diversity of attributes," such as dispatchability, storage and security of fuel supply, according to API's Chief Economist Erica Bowman.
- The study follows the Federal Energy Regulatory Commission's recent conference over power market designs and arrives before a much-anticipated Department of Energy review of the grid, which is slated to be released in July. Bowman said the study is "not in response" to the study or the push for new market designs.
Natural gas has been a primary generation resource for utilities in recent years. Low gas prices — largely resulting from fracked gas emerging out of prosperous shale plays like the Marcellus shale — have pressured utilities that have significant nuclear and coal assets in their portfolios.
For the first time, natural gas surpassed coal in 2016 as the top generation resource in the U.S. Cheap gas prices have squeezed nuclear plants plagued by high operating costs in particular and weakened the economic viability of coal plants. Obama-era climate regulations have also played a role in compelling utilities to switch to natural gas.
Before the recent influx of cheap gas, the volatility of natural gas prices left utilities generally wary of investing heavily in the resource. Even now, some utilities argue that keeping nuclear and coal plants afloat is necessary as a hedge against future price spikes. But API's Bowman said that current natural gas demand and the scope of untapped supply outweigh those cost volatility concerns.
"I think the question is, what is the cost of the hedge and for how long? When you look at supply resources ... and when you look at how much the United States consumes — the entire natural gas consumption, there is a lot of natural gas out there ... I would argue that would be a lot higher than what natural gas resources [cost] today," Bowman said at a press briefing on Thursday.
The Trump administration has vowed to bring back coal in campaign promises, but its unclear how it will do so given the economic realities in the power markets. A baseload review, which is due in early July, commissioned by Energy Secretary Rick Perry plans to look at whether subsidies for certain resources are pushing coal and nuclear plants offline and therefore impacting grid reliability.
API believes that gas can be a solution to any questions of reliability. "With respect to coal, you don't need coal as a baseload to make the electrical system reliable," Bowman. "So natural gas can offer all the attributes that coal can — and then some," including faster ramp times and flexibility compared to coal and nuclear.
States with deep decarbonization goals — such as New York and, to some extent, Illinois — say they are unable to meet emissions goals without their existing nuclear plants. To keep those facilities financially afloat, lawmakers have passed bills outlining zero emission credit programs.
While the influx of cheap natural gas has propelled major utilities to seek state subsidies to protect aging nuclear and coal fleets, API has come out against those programs, which they say skew the market in favor of those subsidized resources.
API seeks to define natural gas as a resource that can do it all. Bowman suggested natural gas is the most cost-effective solution for frequency response and even storage capabilities to offset the intermittency of renewable energy.
When asked whether using natural gas for those purposes would displace emerging technologies like energy storage and demand response in power markets, Bowman acknowledged "there's different technology that can provide these types of attributes and certainly there's a mix that can be procured, and I think from our perspective we would like to have a market design that would allow [these technologies] to bid into the market ... from that perspective, we are saying natural gas can provide these things."
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