December 2019, Vol. 246, No. 12
Features
Electrification: Sorting Out Where Natural Gas Supply Fits In
BY Richard Nemec, Contributing Editor
Electrification should not be confused with electrocution, although many players in the natural gas industry may be inclined to say the two might yield similar results for their chosen sector.
It’s a word that is gaining attention these days from the corporate and regulatory boardrooms to the oilfields where hydraulic fracturing and other innovations have vaulted the United States into the global lead for both oil and natural gas production. White papers and webinars on the subject have been popping up all over.
In late October, the Oregon-based Northwest Gas Association held an Internet-based program featuring the executive director of a grass roots organization, Californians for Balanced Energy Solutions (C4BES), which was formed in 2018 to serve as a buffer against an aggressive push in California to decarbonize the state’s power industry and other areas as a hedge against the impacts of climate change.
“This threat has become more sustained and more of a threat as time goes by,” said Jon Switalski, executive director of the coalition for balanced energy, noting that his members support most of the measures in California that are aimed at reducing greenhouse gas (GHG) emissions to mitigate climate change.
Rather than a “tool” of the gas utility industry, however, he said the group is made up of large industrial operations, the building industry, labor unions and utility employees, along with affordable housing developers and nonprofits. The pro-gas effort stresses the need to keep energy affordable and to maintain customer choice.
As the battle lines are more clearly drawn in the latter months of 2019, California is experiencing an increased number of local governments turning to bans on gas in new building construction.
“We have a sustained social media effort throughout the state to counteract these policy shifts,” Switalski said. “We’ve seen interest in these issues skyrocket,” he said, noting this has prompted the coalition to adopt guerrilla-style campaign tactics seeking to build up momentum for the pro-gas side of this ringing debate. What many view as a long-term problem is actually a problem right now in 2019-20, he said.
Nevertheless, in the fall of 2019, the U.S. Energy Information Administration (EIA) national energy outlook pegged natural gas and wind as “the fastest growing sources of U.S. electricity.” Subsequently, Morningstar Equity Research opined that natural gas and renewables are projected to be the nation’s leading power generation sources over the next decade.
From 2018 to 2030, the share of U.S. natural gas from electric generation is forecast to rise to 41% from 35%, while renewables are expected to more than double to 22% from 10%. Renewables would surpass coal, nuclear and hydroelectric to take a role second only to gas in the power stack. Gas-fired power is forecast to increase 33% and renewables 142% during the period, according to the report.
The American Gas Association’s Richard Meyer, managing director for energy analysis, thinks the Morningstar forecast reflects the economic and environmental advantages of natural gas and underscores it is “a flexible energy source that has, and will continue to, enable the expansion of renewable technologies.”
Morningstar is forecasting renewables growing at about the same pace during all of the coming decade. Renewable portfolio standards (RPS) now in effect across the country would help drive growth, according to Morningstar analyst Charlie Fishman.
On a third-quarter earnings conference call this fall, Minneapolis-based Xcel Energy Inc.’s CEO Ben Fowke advanced the proposition that the growing anti-fossil fuels movement in the United States actually makes it a good time to stock up on gas-fueled assets.
In talking about a proposed $650 million purchase of an updated two-unit, combined-cycle gas-fired generation plant that state regulators refuse to have integrated with one of Xcel’s utilities, Fowke intends to operate the Mankato, Minn., plant as a nonregulated power provider with a long-term contract to supply Xcel’s Minnesota utility. Even though Xcel’s strategic focus is on renewables and a zero-carbon electricity vision for 2050, he also is retiring the company’s last two coal-fired generation plants and as such, Xcel must acquire “strategic gas-fired assets.”
“We believe that Mankato has tremendous value in terms of reliability and consistency, which is why we have filed with the state public utilities commission to own and operate the plant as a nonrate-based asset and assume the existing PPAs [purchased power agreements],” Fowke told financial analysts on the conference call. “The trend toward anti-gas makes existing gas assets valuable, and we are retiring our coal plants and are keenly focused on reliability,” he said in late October. Referring to the Mankato plant, he added, “I think the value in existing gas assets is only going to grow, and this is a combined-cycle plant that we modeled very conservatively.”
Nationally, natural gas advocates say that the electric industry is hiding its strategy for an all-electric future behind the rubric of climate change and environmental advancement. Therefore, the Edison Electric Institute touts a “Clean Energy Vision” for the industry that includes de-carbonizing the power generation fuel mix, electrifying transportation vehicles, and pushing more “robust battery technologies” that are still far behind some gas-to-power advancements. In California in 2019, three separate state sources collectively allocated more than $1.5 billion to incentivize all-electric buildings.
A study commissioned by the California Energy Commission (CEC) by Energy and Environmental Economics (E3) concluded the “lowest societal cost path” for the state reducing its GHG footprint required high levels of building electrification. That strategy, according to E3’s study, will be about $20 billion a year cheaper by 2050. Thus, in 2019, a growing number of California cities were proposing to ban the use of natural gas in new building construction.
A white paper by Edison International’s Southern California Edison (SCE) utility touting “clean power and electrification” looks at competing options of renewable natural gas (RNG), or biomethane, on the one hand and hydrogen on the other, and rejects both as more costly that electrification, estimating a higher per-ton cost of pollution cleanup for each option.
SCE puts a $79/ton cost for electrification, compared to $137/ton for RNG and $262/ton for hydrogen. Power-to-gas is cited as “not yet commercially available” and a large biogas market requiring too many imports. In contrast, SCE characterizes electrification as “dependent on broad adoption of electric technology,” all of which already exist.
For the next decade, SCE’s vision calls for having 80% of its power supplies come from carbon-free sources by 2030, more than 7 million electric vehicles (EV) on the road and having a third of the space and water heaters in its territory be electric.
“These electrified technologies will use zero emission resources like solar and wind to provide most of their power, and they in turn support the electric grid by balancing electricity demand with supply,” the utility said in the white paper.
By the Numbers
In the midst of this vision are some numbers crunching for the first four years of 2020s decade by Colorado-based BTU Analytics LLC, based on actual statistics for 2010 through 2018. The analysis shows natural gas use actually growing for power generation, industrial, LNG exports, and Mexican exports. The Lakewood, Colo.-based analysts see residential and small business sector staying flat, but still accounting for 22.6 Bcf of consumption annually. Meanwhile, after dipping slightly, power generation climbs to 32.1 Bcf and Industrial to 25.2 Bcf in 2024.
“It is hard to see how existing residential/commercial heating demand would go down quickly as it would require an investment by the homeowner to swap out a furnace and convert to electric heat, which is fraught with headaches and renovation costs,” said BTU Analytics CEO Andrew Bradford, who three years ago wrote an article concluding gas markets should not count on growing residential and commercial demand. “Utility-scale batteries have a long way to go to back up the intermittency of existing and future build-out of wind and solar projects, so in the next five years the intermittency will be backed by gas.”
Most of the larger natural gas utilities and other operators, who have embraced climate change as more than a reality, also treat it as an opportunity for the energy sector as articulated by Xcel Energy’s CEO Fowke who has kicked off a campaign for “Building a Carbon-Free Future.” Fowke articulates the challenges and risks, along with the opportunities.
Late in October, it was no surprise to find a major midcontinent electric cooperative helping promote the start of a new national effort in Colorado, the Beneficial Electrification League (BEL) that is lining up private and public sector power-related organizations with a stake in what Fowke refers to as “nothing less than a transformation of our industry.” The distinction, however, is that Fowke’s vision leaves room for natural gas, while BEL said its goal is to promote the efficient use of electricity to replace fossil fuels.
“As technologies have improved and costs have fallen, we are making significant changes – more than we imagined possible a decade ago,” Fowke said. “And it has happened without compromising the reliability or affordability that our customers expect. We need all three components – clean, reliable, and affordable – to make this transition work.”
Colorado is seen as a potential catalyst for the Natural Resources Defense Council’s Kit Kennedy, who wants to “replace polluting fossil fuel equipment with efficient electric alternatives powered by clean electricity.”
This is, the NRDC’s senior director for climate and clean energy said, the “most important and effective opportunity for dealing with the climate crisis.” He and others in the rural cooperatives are marketing “beneficial electricity” like a brand.
To combat the electric industry campaign, California’s C4BES coalition is using a heavy dose of social media advertisements and some old-fashion guerilla tactics to arouse consumers who like their gas appliances, according to Jon Switalski. He has studied a 28-page white paper, “California’s Gas System in Transition,” by GridWorks (formerly Smart Grid), describing how to redesign the state’s gas network as California shifts over the next 30 years to 100% clean electricity and carbon neutrality, predicting that this will cause a “significant reduction” in demand for gas and drive up the cost of operating the state’s extensive multi-billion-dollar gas transmission and distribution system.
The GridWorks analysis makes the same point the industry does: electrification promises to drive up the cost of safely maintaining a gas infrastructure unless policymakers and the industry can come up with a well-thought-out strategy for avoiding the inevitable. Hammered out in discussions in mid-2019, industry, environmental, labor union and local governmental representatives identified the essence of the challenge, a prudent path forward, and other recommendations that should be refined in the future.
The challenge, they agreed, was a California energy system undergoing “profound change, seeking 100% clean energy, doubling the amount of energy efficiency, electrifying transportation, and settling on a carbon-free economy.”
Under existing laws and policies, gas-fired electricity will be largely replaced by renewable generation, along with various forms of energy storage, demand response, energy efficiency and other GHG-free alternatives. The report notes, “Even under a scenario with no building electrification, residential gas use will decline by 25% due to efficiency measures alone.”
In California, the CEC has had the consulting firm E3 examine the consequences of electrification of new buildings and how it compares to scenarios applying RNG to the equation. They conclude the electrification of buildings has greater environmental and public health benefits.
“In any low-carbon future, gas demand in buildings is likely to fall because of electrification and the [higher] cost of RNG,” according to an abstract of E3’s draft report circulated internally in October by the CEC, but not made public.
CEC officials recognize that large reductions in gas demand create, as E3 has articulated, “a new planning imperative for the state.” Keeping the gas system safe and reliable will cost a lot more between now and 2050. And then there is the realization that even with a large amount of electrification of new buildings, millions of natural gas customers will remain on the local gas systems even in 2050. So, the CEC engineers are left to figure out the various gas transition strategies that are good for consumers and the state as a whole.
Seattle is one of the city’s where elected officials are discussing the prospects of banning gas in new buildings in the city, although the city councilman who proposed the measure subsequently delayed any action on it to allow six months to study the issue more closely.
The local gas utility, Puget Sound Energy (PSE), a combination gas and power provider, responded to the idea with a letter to all of its customers expressing surprise at the Seattle proposal after PSE was active with the state legislature in supporting passage in 2019 of a state clean energy transportation act (SB 5116).
The letter reminded the public and the city officials that PSE provides nearly a million customers with gas service, 150,000 of them in Seattle, and they need to be taken into consideration.
“On the coldest days of the year, PSE’s natural gas system provides about two-thirds of the energy used in Seattle,” PSE’s letter reminded everyone. “Before deciding any new policy there must be a clear understanding of how the decision would impact reliability, affordability and safety.”
Between the Lines
Reading between the lines of the letters, white papers and forecasts that electrification has inspired, it is clear that the old adage of “think global, act local” is spot on. A lobbying effort by oil and gas operators, and midstream companies would fall on deaf ears most likely. The focus has to be on states and the major gas providers in each of those areas. Xcel, with its multi-state gas and electric utility presence, seems to be ahead of the curve as the self-identified first major U.S. utility to articulate a vision publicly for providing carbon-free electricity by 2050.
And that includes “exploring opportunities to help customers reduce carbon from their natural gas use,” said Julie Borgen, a spokeswoman in Minneapolis. Borgen said Xcel’s advancements in using more wind and solar power in its mix will be accompanied by similar enhancements for natural gas, battery storage and nuclear power. Collectively, these advancements will allow Xcel to reduce its carbon footprint by 80% in the next decade, she contends.
Borgen underscores the need to help end-users reduce carbon in their gas use. Gas is efficient, safe and reliable for heating homes and businesses, and most of Xcel’s utilities are in the cold climes of Colorado, Minnesota, Michigan, North Dakota and Wisconsin, where 80% of the customers use gas heating, according to Borgen.
While she acknowledges there are “no easily implementable and affordable” alternatives for reducing GHG emissions in buildings, Xcel nevertheless is confident that new technologies, including RNG and hydrogen blending, will continue to develop and become viable.
In 2019, Xcel signed three contracts to develop pipeline interconnections for RNG in its Colorado and Minnesota gas utility systems. The first of those deals put renewable natural gas into the Xcel utility system in Colorado at the end of October. It is conceivable that these actions will become more common in the coming decade.
A second means of de-carbonizing the natural gas system in the ongoing efficiency gains that have dropped gas consumption among Xcel’s customers in eight states from 2000 to 2018 by 18.6%, according to Borgen.
Borgen makes Xcel’s approach quite clear:
“We are mindful of methane emissions from our gas distribution system, although these emissions are a very small part [less than 1%] of our company’s GHG footprint, we have participated in the Environmental Protection Agency’s voluntary programs to reduce methane emissions since 2008, and we have eliminated 149,000 metric ton of CO2e emissions, primarily through investing more than $1 billion in our gas infrastructure through our integrity management programs.
“We plan to continue helping customers use natural gas efficiently with optional demand-side management programs, while exploring voluntary, cost-effective options like RNG, hydrogen and the strategic use of electrification.”
At Xcel, and maybe eventually nationwide, natural gas still has a role to play in the decades ahead.
Richard Nemec is P&GJ’s correspondent in Los Angeles and a regular contributor. He can be reached at rnemec@ca.rr.com.
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