In Power Generation, Natural Gas Defines Reliability

Mark Green
Posted October 4, 2017

Some initial takeaways from this week’s House hearing, during which there was considerable discussion of the U.S. Energy Department’s recent request that a new electricity pricing program be developed by the Federal Energy Regulatory Commission – one that effectively would favor some energy sources over others.

First, as we argued twice last week (read here and here), markets – not preferences, mechanisms, subsidies or whatever – should be allowed to select energy sources for power generation, because they reward innovation, promote efficiency, lower prices and work to benefit consumers.

There are good reasons that natural gas was the United States’ leading energy source for generating electricity last year. Marty Durbin, API executive vice president and chief strategy officer, testified before the House Energy and Commerce Committee’s energy subcommittee, which conducted the hearing on defining electricity grid reliability (prepared remarks):

The increased use of natural gas in electric power generation has not only enhanced the reliability of the overall system, but it has also provided significant environmental and consumer benefits. The abundance, affordability, low-emissions profile and flexibility of natural gas and natural gas-fired generating units make natural gas a fuel of choice.

This is because natural gas is reliable – abundantly available in this country thanks to the U.S. energy renaissance. The generation that natural gas fuels is uniquely positioned to supply the “essential reliability services,” as Durbin called them, to keep the electric grid in balance. A recent study on the diversity of reliability attributes that ensure the health of the modern grid identified these, which include dispatchability, ramp rates, frequency response and others. A diversity of attributes graphic from the study:

Durbin:

It is clear that natural gas generation has exceptional performance characteristics and attributes that can provide a full range of essential reliability services needed by the electric grid to maintain reliability. One important advantage of natural gas generation is its ability to ramp quickly and to cycle on and off in a short amount of time to meet the more rapidly changing levels of load due to increasing amounts of variable renewable energy resources on the grid. With respect to overall reliability, natural gas as a fuel supply is also exceptionally reliable, and the natural gas industry has a long history of providing reliable and continuous supplies to its customers, even in times of adversity, such as extreme weather events.

Durbin told the subcommittee that grid reliability is derived from a diversity of attributes in generation, not a diversity of fuel sources. He cited a report by PJM Interconnection, which oversees much of the Mid-Atlantic electric grid, which found more diverse fuel portfolios aren’t necessarily more reliable. An important point in PJM’s report:

Portfolios composed of up to 86 percent natural gas-fired resources maintained operational reliability. … [T]his analysis did not identify an upper bound for natural gas.

A second takeaway from the subcommittee hearing is that DOE’s proposal is meeting with a good deal of skepticism – from lawmakers and others giving testimony. Rep. Kathy Castor of Florida:

“This is quite a misguided effort they need to take back to the shop and work on it. … Clearly they are favoring fuel sources that are less competitive today. This is going to cost consumers dearly.”

Christopher Mansour, Solar Energy Industries Association:

“Healthy competition will yield the most innovative solutions and low costs for ratepayers.”

John Moore, National Resources Defense Council:

“To simply pick one attribute over all others and reward that one attribute without any evidence to back it up does mean that is diverting easily billions of dollars a year directly and indirectly, chilling market design …”

Two other quick points Durbin made at the hearing: Natural gas-fired power plants are one of the most cost-effective forms of electricity generation to build and operate – which has resulted in significant wholesale electricity cost reductions. For example, in PJM since 2008, average annual wholesale power prices have decreased almost 50 percent. PJM West Hub electricity prices and Henry Hub natural gas prices the past 12 years:

Durbin:

Competitive markets work by eliminating inefficiencies in the system, thereby driving down prices for customers. Competitive forces in natural gas markets have resulted in the shale gas boom currently providing numerous benefits to the nation. Over the last decade, the natural gas industry has enhanced efficiencies and reduced costs. … [R]ig counts have fallen drastically while natural gas production has continued to rise. This is due to technological innovations driven by market competition. The same market forces simultaneously improve reliability and resiliency as those become necessary attributes in order to remain competitive.

The second point is one we keep noting: The increased use of natural gas is the primary reason U.S. carbon dioxide emissions from electricity generation are near 30-year lows. According to the government, 60 percent of the CO₂ reductions in the electric power sector from 2005 to 2016 have been the result of fuel switching from higher emission generation to natural gas generation.

Let’s close where we began: markets. Along with public policy and environmental policy, markets are driving shifts in the U.S. power generation mix. Natural gas has become the leading energy source for electricity because of its reliability, affordability and environmental advantages – which no other form of power generation matches. Policymakers need to respect markets. Durbin:

The natural gas industry stands ready to work with all stakeholders to ensure that our nation’s electrical grid is reliable, safe, and resilient. We urge policymakers to recognize that a free and competitive market-based approach is the best way to ensure that our nation’s electricity needs are met affordably, reliably and in the most environmentally responsible way possible.