In the race to reduce carbon footprints and replace coal as a primary energy source, much has been made of an alleged “battle” between natural gas and renewables in the power generation industry. However, an astute market read — fueled by actions from utilities and regulatory agencies – may find the two sectors growing in conjunction for decades to come.
Some of the recent changes that impact the market share of each sector include the rise of microgrids and gas-fueled generation, moves by utilities to position natural gas alongside renewables in balanced portfolios, and recent regulatory mandates.
“The prospects for natural gas in this ‘race’ brighten considerably when one considers that natural gas is no slouch when it comes to distributed energy,” said Alap Shah, Director of Technologies in Black & Veatch’s Power business. “Natural gas-fueled microgrids and microturbines, which are beginning to find use by large manufacturers as a legitimate and low-carbon footprint power source, are entering service and, in some cases, relegating the main grid to backup-source status.”
Momentum is building across the natural gas industry for distributed energy resources, according to the 2015 Black & Veatch Strategic Directions: U.S. Natural Gas Industry report. More than two-thirds of natural gas service providers viewed the growth of natural gas distributed energy resources as an opportunity to grow their business. Only 7.8 percent viewed this as a threat to their business.
Clean Power Plan Will Boost Natural Gas
Organizations are maneuvering to meet emissions reduction goals set out in the Clean Power Plan (CPP). The CPP proposes state-by-state emissions levels for existing power plants, with the cumulative goal of reducing nationwide carbon emissions by 32 percent by 2030.
Among the CPP’s objectives is one that involves going above 70 percent capacity in the existing combined cycle plants, up from approximately 48 percent currently. The CPP will require plant owners to implement significant equipment upgrades to boost efficiency.
“Combined cycle facilities that are around 15 years old are strong candidates for gas turbine upgrades, along with an associated upgrade of the steam turbine generator, heat recovery steam generator and the balance-of-plant equipment,” Shah said.
Forecasted growth in capacity, combined with an abundant supply of natural gas and a need to integrate renewable portfolios, will drive future investments in natural gas-based power generation projects.
“The Clean Power Plan, despite its uncertain legal future in the states, will likely prompt investments in power generation, primarily to combined cycle plants and renewables,” Shah noted.
Expanding Market Share of Combined Cycle Plants
Price stabilization is another factor that will play a role in the increased market share for natural gas. Natural gas production methods, including hydraulic fracturing, are becoming more accepted and are expected to keep production levels high and prices steady.
“Even with the higher consumption in power plants, such price stabilization should give
investors confidence in the role of natural gas
going forward,” Shah said.
A recent Black & Veatch Energy Market Perspective forecast for U.S. generating installed capacity predicts combined cycle will expand its share from 21.8 percent in 2014 to 38.2 percent in 2038, while combustion turbine (simple cycle) will change by only a few points over that span, moving from 13.5 percent in 2014 to 15.6 percent in 2038.
Most sectors within the natural gas industry – from producers to local distribution companies to industrial users – see the opportunity for business growth.
An Upbeat Future Despite a Slow Economy
Overall, the combustion turbine market is bright, although some factors have yet to materialize. A slowly recovering economy has led to uncertainty in fuel pricing, as well as a lack of adequate pipeline capacity to move the gas. This has been accompanied by a lack of load demand from industry and households.
Still, technological advances are allowing natural gas to provide baseline power that can support the intermittency of solar and wind.
“Plant owners should ensure that future turbines meet efficiency standards as part of their risk management process,” Shah said. “Owners should also focus on negotiating long-term service agreements, a key point toward minimizing life cycle costs of the plant.”
Published originally on Black & Veatch Solutions.
