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Risk of Relying on Natural Gas for Base Load

March 12, 2013

It’s now clear, relying too heavily on natural gas for base-load power generation is a risk associated with the decline in the number of coal-fired power plants.

While there are ample supplies of natural gas, the natural gas pipeline infrastructure doesn’t align itself with the new demand by power plants for natural gas.

Most electric utilities using natural gas have interruptible supply contracts with their suppliers of natural gas. This means that a shortage of natural gas, which can occur during cold weather when there is insufficient pipeline capacity to handle the demand, will result in electric utilities having their supplies cut off, in favor of residential customers who rely on natural gas for heating their homes. Regulators have generally favored homeowners in this regard.

Such an event happened in New England in January, 2004. The situation in New England hasn’t improved since then.

There is also a threat of cascading failures.

Natural gas pipelines may use electric motors to compress natural gas for distribution. A cutoff of natural gas to power plants would cause them to shut down, which could, in turn, result in the loss of power to the pipeline’s electric motors and the resulting collapse of a region’s natural gas distribution system.

It’s also true that new, larger natural gas power plants require greater volumes of natural gas, which existing pipelines, even those built to serve older and smaller natural gas power plants, were not designed for.

In the past, firm supply contracts by electric utilities have not made economic sense. (Theoretically, firm contracts mean users won’t be cut off. The inherent conflict between homeowners and electric utilities could upend this concept.)

In today’s environment, where the grid becomes increasingly reliant on electricity from natural gas power plants, it may be necessary for utilities to sign firm agreements for their natural gas supplies. This would mean higher prices for natural gas and higher prices for electricity.

It could also result in coal-fired power plants regaining their competitive advantage sooner than might otherwise be the case. However, it’s no longer possible to build coal-fired power plants in the United States because of EPA regulations, so fuel competitiveness no longer matters.

It’s also doubtful that regulators will allow homeowners to be shut off from natural gas supplies in the winter.

Given these factors, one wonders whether firm supply agreements by electric utilities are even possible.

If not, we face an increasingly greater risk as natural gas power plants produce an even larger portion of our electricity as more coal-fired power plants are closed.

This raises the question as to whether pipeline capacity can be increased quickly enough to mitigate the threat. Building new pipelines means higher prices for homeowners, for both natural gas and electricity, as regulators allow increases in rates so that pipeline or natural gas distribution companies can obtain a return on their investment.

This is a totally unnecessary risk created by the EPA, brought about by the EPA’s attempt to cut CO2 emissions 80% by 2050. The risk could be completely eliminated by allowing the construction of modern, more efficient ultra-supercritical coal-fired power plants.1

Note:

  1. Ultra-supercritical coal-fired power plants are 45% more efficient than the existing fleet of coal-fired power plants, and produce CO2 levels nearly as low as natural gas power plants.

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6 Comments leave one →
  1. kakatoa permalink
    March 12, 2013 12:24 pm

    Out here in CA, we have already gotten rid of almost all the coal fired generation facilities in the state. LADWP and the other public utilities are now required to meet the 33%RES by 2020 and it will effect their generation mix. It will be interesting to see what the upcoming paper entitled “Forecasting Demand and Supply in California’s Cap and Trade Market” has to say about prices.

    “Today we are taking the unusual step of posting in advance a draft paper that will be presented at the Energy Institute’s POWER research conference on March 22.

    http://energyathaas.wordpress.com/2013/03/12/forecasting-supply-and-demand-in-californias-cap-and-trade-market/

    The paper is “Forecasting Demand and Supply in California’s Cap and Trade Market” by Elizabeth M. Bailey (University of California, Berkeley), Severin Borenstein (University of California, Berkeley), James Bushnell (University of California, Davis), Frank Wolak (Stanford University), and Matthew Zaragoza (University of California, Berkeley). Because the paper presents estimates of possible future prices in the market, we felt it was important to make sure that all potential market participants had equal access to it.

    The paper will be posted at noon PDT at the website for the POWER conference, http://ei.haas.berkeley.edu/power.html

  2. March 12, 2013 12:33 pm

    Many thanks. I’ll look at the paper as soon as it is available.

  3. Stan Jarosz permalink
    March 12, 2013 12:54 pm

    Donn

    As usual an insightful article that our politicians will ignore. We are on a collision course that is selfmade and our government is determined to ruin our economy.

    Stan….see u @ restaurant???

  4. March 12, 2013 2:54 pm

    Thanks for your comment. There’s little doubt that government energy regulations are having a very negative effect on our economy.
    Probably, but not sure when.

  5. March 12, 2013 6:07 pm

    Germany has hit that problem in February 2012, having to rely on a very old backup coal plant in Austria to compensate for the gas one that had to be shut down.

    The missing option here is of course the use of nuclear plants.

    China is on the track to deliver a new nuclear plant every two month continuously from now until 2016 where it may slow down a bit. I do expect at one point people in the West will start to realize what’s happening there.

  6. March 12, 2013 9:16 pm

    Thanks. Insightful comment. Unfortunately, nuclear in the US is probably on the decline … problem in getting second license renewals for existing 102 nuclear plants, and dearth of new plants being built.

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