Hearing Panelists Assess Grid Reliability Challenges Posed by Nat. Gas, Renewables

Panelists at a House hearing today refuted varied claims concerning if and how increased natural gas and renewables generation pose widespread challenges to the reliability of the electric grid. Some pointed to ineffective rules in the restructured wholesale power market and the failure of conventional power plants as being more of a threat to grid reliability.

As a memorandum on the hearing to the House Committee on Energy and Commerce notes, the share of natural gas in the nation’s generation mix increased from 25% in 2011 to 30% in 2012 on the back of low natural gas prices, more coal-fired plant retirements, and an increased need for backup support as the share of renewables generation also surged. However, the increased share of gas generation not only posed potential integration issues as the electric and natural gas industries had become more interdependent, but pipeline infrastructure and storage challenges could potentially impact electric reliability and increase power rates in some regions, the memo asserts.

The share of non-hydro renewables also increased to about 5% in 2012, largely as a result of technical advancements, environmental policies, and a number of state and federal incentives intended to make renewables more cost-competitive with traditional generation sources. But integrating increasing amounts of these so-called “variable energy resources” presented a number of operational challenges stemming from their intermittency, the memo observes. “The electric system is designed to meet customer demand in real time, meaning that supply and demand must be kept in constant balance. Integrating large amounts of variable resources complicates this balance and can impact the reliability of the electric grid if not properly addressed,” it says, citing the North American Electric Reliability Corp.

Pipeline Supply Not the Issue

There is “no question” that natural gas and gas pipelines could serve gas-fired power plants reliably, testified Dominion Energy CEO Gary Sypolt, who represented the Interstate Natural Gas Association of America at the hearing. If natural gas is chosen as a fuel for power generation, “the pipeline industry is confident if can reliably meet the needs of its customers assuming they contract for the appropriate natural gas transportation services,” he said.

A more pertinent question that should be asked, he said, is “whether the market rules and regulatory structures within a wholesale electric power market place an appropriate value (or price) on reliability such that there is an incentive to ensure the ability of a generator to operate reliably. This is a critical question no matter what option is chosen to ensure the reliability of an electric generator, i.e., contracted pipeline capacity, liquefied natural gas, coal, dual fuel capability or some other means.”

New England was a good example of this concern, Sypolt said, because while its reliance on gas-fired generation had grown significantly, rules in the restructured wholesale power market made it difficult to recover costs associated with procuring reliable natural gas service. New England’s generators were making a “rational economic choice” when they chose not to sign up for firm pipeline transportation, opting instead to rely on pipeline capacity acquired in the secondary market to meet their gas delivery needs, he said. Combined with the fact that the region is “at the end of the pipeline network,” pipeline capacity in the region is already tight, and the region’s dependence on gas for space heating is growing, New England’s troubles are poised to be “the perfect storm,” he said.

The bottom line is that restructuring of the wholesale natural gas market has “been a remarkable success” that showed the “natural gas model works,” Sypolt said. The pipeline industry has kept abreast with market demand—unlike the expansion of the electric grid, he noted: Between January 2003 and March 2013, more than 12,000 miles of new interstate pipeline capacity was placed into service—compared with just 1,113 miles of high-voltage interstate transmission lines that had been built between January 2000 and September 2011.

Sypolt’s claims were tempered by another panelist, Paul Cicio, president of the Industrial Energy Consumers of America, which is a nonpartisan association of energy-intensive companies. Cicio argued that consumers were not being served by the inactions of policy makers. “No one is in charge of natural gas pipeline reliability,” he said. The industry, meanwhile, has no means to assess which pipeline constraints exist in other parts of the country. “The announced shut down of about 50 GW of coal and oil-fueled power generation units due to [Environmental Protection Agency] regulations, and approximately $100 billion in new natural gas driven industrial facilities, will place a lot of new demand on the existing pipeline infrastructure,” Cicio pointed out. A lot of uncertainty remains, he added, including if liquefied natural gas export demand would peak during the winter season, and how much that could increase reliability concerns as well as natural gas and electricity prices.

Beware of Weak Energy Forecasts

John Shelk, president and CEO of the national trade group Electric Power Supply Association (EPSA) warned against what he called the “inherent weakness of energy forecasts,” saying “‘the shale natural gas gale’ would not be the ‘last game changer.’ What’s next in cleaner coal, solar, smart grid, storage, modular nuclear reactors, natural gas technologies, electric vehicles, efficiency, distributed generation and demand-side management? The variables are numerous, the possibilities nearly endless and risks are great,” he said.

Shelk echoed Sypolt’s assertion that the electric/gas challenge varies by region, and a regional approach is preferable to a “top-down federal solution.” He also pointed out, however, that demand response threatens to undermine the reliability of capacity markets without reforms, saying it is a bad substitute for megawatts needed to keep the grid reliable.

Competitive markets have many advantages, he said, but “regulation … needs to keep up.” One improvement needed is that flexible resources such as natural gas plants must be compensated for providing electricity when intermittent ones do not. “Policymakers should avoid interfering in ways that distort market prices and undermine market revenue streams,” Shelk concluded.

Wind Is a Growing Source of Proven Reliable Power

Taking issue with the stigma wind power has as a “variable energy resource,” Rob Gramlich, interim CEO of the American Wind Energy Association (AWEA), asserted that wind energy can no longer be discounted as a major source of reliable power in the U.S. Wind provided—reliably—more than 20% of power in Iowa and South Dakota last year, more than 10% of power in nine other states, and at times, more than 55% of power on the main utility system in Colorado and 35% on the main grid in Texas, he pointed out.

At the same time, “dozens of studies” by independent grid operators and utilities have concluded that use of wind energy could increase many times over without any negative impacts on reliability. “This is possible because the grid takes power from many sources that vary over time, just like the Mississippi River takes water from many tributaries and keeps a steady flow into the Gulf of Mexico,” he said.

Gramlich argued that the changes in output at one wind plant are almost always canceled out by an opposite change somewhere else on the grid. Because wind turbines are spread across a large area, it could take many hours for a weather event to affect a large share of a region’s wind output. Advancements in weather forecasting could also make these changes predictable, he said.

Meanwhile, compared to wind power, electricity demand changes and failures at conventional power plants make a “far larger” contribution to grid variability and the need for flexible reserves to balance supply and demand. “Even if additional backup is needed, it is much cheaper to accommodate the slow and predictable variations in wind output than the instantaneous loss of conventional power plants that can occur at any time,” he said.

Gramlich pointed to 2012 data from the Electric Reliability Council of Texas (ERCOT) that showed costs of obtaining backup for about a 9.2% share of wind power accounted for about six cents of a typical household’s $140 monthly bill. Other data from Texas, in contrast, showed that accommodating outages at other power plants was 40 times higher.

Gramlich was the only witness representing the renewables industry. Another panelist, Daniel Weiss, a senior fellow and director at the Climate Strategy Center for the American Progress Action Fund outlined a number of grid reliability threats posed by climate change.

Subsidies Indirectly Harm Reliability

But in a starkly different perspective, Dr. Jonathan Lesser, president of energy and regulatory consulting firm Continental Economics, suggested that federal and state policies that subsidize development of intermittent generating resources—particularly wind—reduce the reliability of the power system because of the resources’ “inherent” volatile nature. To compensate for this “reduced reliability”—a potential loss of “thousands of megawatts … from intermittent resources when conditions change”—power system operators are forced to increase reserves of gas-fired generation, he argued.

“These additional reserve requirements increase reliability-related integration costs, which are socialized across all customers. As more intermittent resources are built, they increase the severity of reliability issues and increase per megawatt-hour integration costs, as well as total integration costs,” he said.

Lesser claimed that wind generation exacerbates economic losses of traditional “baseload” generating units because they tend to produce the greatest amount of power when the demand for power is lowest (at night, in the spring and the fall). Subsidies for these renewable energy sources, coupled with “socialized” reliability-related and transmission integration costs, means that renewables generators pay only “a small fraction of the true costs” they impose on the system. And, he claimed, this “artificial price suppression” is further affecting traditional generation, causing such plants to retire prematurely and suppressing new generation investment.

Sources: POWERnews, House Committee on Energy and Commerce

—Sonal Patel, Senior Writer (@POWERmagazine, @sonalcpatel)

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