Gas & Power Generation



Natural gas is one of the key fuel inputs for electric power generation. New technology, particularly combined-cycle technology, has made the natural gas power plant the energy system of choice in recent years-and gas remains a leading fuel of choice for future power plants as well.

Gas Plant Advantages: Lower Emissions, Higher Efficiency

Power generation is one of the leading natural gas consuming sectors in the Northeast region. Shown here is a natural gas combined-cycle power plant (674 MWs) in Salem, MA that went online in mid-2018.


The comparative advantages of natural gas power generation include higher efficiency, lower heat rate, shorter construction lead times, and reduced air pollutant emissions compared to other fossil fuels.

The rise in natural gas use in power generation is leading to lower air emissions, from sulfur dioxide to carbon dioxide. In October 2018, in an issues brief, U.S. EIA noted: "U.S. electric power sector carbon dioxide emissions (CO2) have declined 28% since 2005 because of slower electricity demand growth and changes in the mix of fuels used to generate electricity...The power sector has become less carbon intensive as natural gas-fired generation displaced coal-fired and petroleum-fired generation and as the noncarbon sources of electricity generation-especially renewables such as wind and solar-have grown. The substitution of natural gas for other fossil fuels has largely been market driven, as ample supplies of lower-priced natural gas and the relative ease of adding natural gas-fired capacity have allowed it to pick up share in electric power generation in many markets. In 2016, natural gas generation surpassed coal as the largest source of electricity generation."

At the regional level, the same dynamic is in play. In New York State over the last 20 years (from 2000-2019), NY ISO reports that emissions rates from the power sector dropped by 55% for CO2, 92% for NOx, and 99% for SO2. ISO-NE reports that from 2001 to 2018, total emissions from power plants in New England dropped by 98% for sulfur dioxide (SO2), 74% for nitrogen oxides (NOx), and 36% for CO2.

Chart: NY ISO, May 2020

PJM emissions data indicates a significant drop in SO2, NOx and CO2 for its entire region, which includes declining trends for all three pollutants in both New Jersey and Pennsylvania.

Natural gas generation also increases average plant efficiency. As noted by EIA in July 2020: "In recent decades, the U.S. electric power grid's fuel mix has shifted from mostly coal to a more diverse selection of fuels, including natural gas and renewable energy. In particular, the shift toward newer, more efficient natural gas-fired power plants with combined-cycle generators has resulted in an increase in the average efficiency of fossil fuel-fired electric power plants and in lower levels of overall conversion losses."

Gas Seen as Central Power Sector Input in Coming Decades


Natural gas is positioned to be among the leading fuels for electric power generation in the next decade (and beyond), along with renewables. Gas is also a key fuel input for new technology options like fuel cells, combined heat and power, and distributed generation. Natural gas is also seen as the key "back-up fuel" to offset the variability and intermittency of wind power and other renewables.

Some examples of recently-added natural gas generation capacity include the 805 MW CPV Towantic plant in Oxford, CT (June 2018); the 674 MW Salem Harbor station in Salem, MA (June 2018); the 680-MW CPV Valley Energy Center in Wawayanda, NY (October 2018); the 485 MW PSEG Bridgeport Harbor Station Unit #5 in Bridgeport, CT (June 2019); the 333 MW single-cycle unit added to NRG's Canal 3 Generating Station in Sandwich, MA (June 2019); the 1,050 MW CPV Fairview Energy Center in Jackson Township, PA (December 2019); and the 1,100 MW Cricket Valley Energy Center in Dover, NY (April 2020).

The New York Independent System Operator (NYISO) noted in its June 2020 report "Power Trends 2020" that the power grid is in transition. Natural gas currently plays a major role in the system's energy mix. Indeed, the portion of New York's generating capability from natural gas and dual-fuel facilities grew from 47% in 2000 to 62% in 2020.

In its 2019 "Regional System Plan," released in October 2019, ISO-NE stated that "Natural-gas-fired generation's proportion of the system capacity mix is expected to grow from 49.5% in 2019 to approximately 54.4% by 2023 but decrease to 48.6% by 2028. Further retirements of coal and oil generators are expected over the next 10 years due to generally low natural gas prices, renewable energy additions, and pending environmental regulations. The Pilgrim nuclear plant in Massachusetts retired in 2019. Although renewable resources are anticipated to grow over the long term, the ISO expects natural gas resources to continue to set the marginal price for wholesale electricity in most hours over the planning horizon." Thus, for the next decade natural gas will continue to represent essentially 50% of the regional power mix.

Photo: Exelon Generation

In its 2019 state profiles released in February 2020, PJM reports that natural gas represents approximately 66% of total installed capacity in New Jersey, and 45% of new interconnection requests in the state (as of 12-31-19). For Pennsylvania, natural gas represents approximately 42% of total installed capacity statewide, and 56% of new interconnection requests. PJM notes in its "2019 Regional Transmission Expansion Plan," released in early 2020, that "Both natural gas and solar fuels comprise 43 percent of the generation in PJM's interconnection queue...Favorable fuel economics have emerged with the development of the Marcellus and Utica shale formations natural gas reserves, located in the middle of PJM's footprint." (p. 7) These favorable economics continue to situate natural gas as a strong option for power generation today and in the coming years.

In April 2020, the U.S. EIA reported that the three leading sources of new electric generating capacity added in the U.S. in 2019 were wind, natural gas and solar. EIA notes:

  • "Low natural gas prices, a rapid decline in construction costs for solar and wind systems, and an increase in renewable portfolio standard requirements in many states have led to more generation from natural gas-fired and renewable resources in many regions."
  • "In the Northeast region, access to abundant natural gas supply from the Marcellus and Utica shale plays in Pennsylvania and Ohio has led to increases in natural gas-fired power plant capacity."

Natural Gas Impact on Electricity Prices


The increase in U.S. domestic production of natural gas engendered a much lower commodity price position for the fuel in recent years. This is good news for consumers of natural gas at all end-uses, including power plants.

The impact of natural gas prices on power markets is summarized well in these two quotes from ISO New England:

    "Wholesale electricity prices rise and fall in real time based primarily on fuel prices (which are generally the biggest cost for power plants), demand for power, and transmission system conditions."

    "With about 50% of the region's generators able to run on natural gas, the price of this single fuel sets the energy market price most of the time. The high efficiency of natural-gas-fired generators and the generally low cost of nearby domestic shale gas (which emerged as a resource in 2008) are largely responsible for the significant decrease in the average annual price of New England's wholesale electricity over the past 10 years. After plummeting almost 50% a decade ago, average wholesale energy prices have remained consistently low since then. Lower wholesale prices translate into lower power-supply charges for consumers."

However, while the regional price can be quite low at certain months of the year, the delivery price of natural gas to Northeast markets can be quite volatile and high during strong-demand periods, especially in the winter.

The Northeast spot price volatility reflects delivery constraints during high-demand periods of intense cold (or even hot) weather. Natural gas utility customers are generally protected from the daily impact of spot prices, thanks to long-term contracts and storage resources held by local gas distribution companies. On the other hand, the power market in the region operates with high levels of interruptible gas capacity and is thus subject to spot market fluctuations, and that in turn impacts electricity customers.

Even with variations in winter weather, natural gas spot price fluctuations can have a real impact on electricity prices where natural gas sets the margin (as in most of the Northeast).

In March 2017, the U.S. EIA observed: "Historically, both the Boston and New York natural gas markets have experienced winter price spikes because of pipeline constraints during periods of peak demand. Natural gas pipeline expansion projects that were completed in recent years may have reduced, but did not eliminate, sharp price increases with anticipated cold weather."

The Northeast region has experienced periods of the highest gas and power spot market price volatility in the U.S. over several recent winters - in 2013/14, 2014/15, and 2017/18. The prolonged cold snap from late December 2017 through the first week of January set spot market price records, reflecting high demand and system constraints.

Market Challenges


As noted, the regional power generation fleet, already highly reliant on natural gas, is positioned to become more so in the years ahead. There are however several unresolved power market issues that continue to challenge the market.

One is the retirement of many non-gas units in the region. In New Jersey in 2016 PSEG announced the retirement of its last two coal units, noting the competitive market pressure presented by low natural gas prices. In Vermont in 2014, Entergy retired its nuclear plant; in Massachusetts in 2019, it will retire its Pilgrim nuclear facility, and in New York State in 2021, it will retire its Indian Point nuclear facility. In 2017 in Massachusetts, Dynegy closed the large Brayton Point coal plant.

Low natural gas prices in the power market is cited as one of the key determining factors in the recent and planned retirement of many fossil and nuclear plants in the region.

At the same time, public policy in several states in the region is clearly prioritizing non-fossil fuel units for future generation, toward greater integration of clean energy power sources.

Nevertheless natural gas, which today serves as the backbone of the power system regionally, will continue as the backbone while the Northeast region builds a system more reliant on "clean energy." In early 2017, the head of the New England electric grid operator observed in Commonwealth Magazine that "The region's reliance on natural gas will only intensify... While some argue that the region is too dependent on natural-gas-fired power plants, the future hybrid power system will require reliable, flexible back-up power-exactly what efficient natural-gas-fired generators provide."

The balancing of renewables and natural gas is underway in all the Northeast power systems. For example, in March 2017 PJM released a study on system reliability which concluded that even with the addition of more natural gas and renewables, its system would remain reliable. The analysis identified "no limit to the amount of natural gas-fired generation that could be added to the system before it affected reliability." And in December 2017 NY ISO released an assessment of the impact of the pending retirement of the Indian Point nuclear facility on the state's future power system reliability. It found that the system would be fine assuming that natural gas power plants, currently in development in the lower Hudson Valley region, came online in time. The NY ISO stated: "the reliability of the existing system could only be maintained if sufficient replacement sources of power are added within the Lower Hudson Valley (Zones G-J)." As noted, the generating plants under construction referenced in the analysis are natural gas-fired.

However, as the region continues to rely on natural gas for baseload generation, and for providing support for more intermittent resources like renewables, the lack of adequate pipeline infrastructure to meet power sector needs remains an unresolved issue - most notably in New England. Most power generators in New England do not contract for firm gas pipeline capacity and instead rely on "if and as available gas" non-firm capacity, or, in some cases, capacity held by third parties. Pipeline capacity is added to meet the needs of gas customers who desire and are willing to execute contracts for such firm service. This reliance of the power system on non-firm gas transportation capacity for the majority of its gas units has proven very challenging in several recent winters, including the winter of 2017/18. The FERC noted in its pre-winter energy market assessment in October 2018: "Basis futures prices in New York City and Boston averaged $6.03/MMBtu and $8.21/MMBtu, up $0.47/MMBtu and $3.40/MMBtu respectively from last year. This suggests a market expectation that both regions may face pipeline transportation constraints this winter."

More than a decade after the January 2004 "cold snap" first exposed the regional power system's reliance on interruptible natural gas deliveries, the New England gas-electric reliability challenge remains essentially unresolved.

Electric & Gas Industry Coordination


The natural gas and electric system operators in the Northeast continue to increase communications and coordination. NGA and ISO New England, for instance, jointly administer an Electric & Gas Operations Committee (EGOC) to increase understanding and information exchanges (on publicly-available information). The EGOC includes the NY ISO and PJM as well as other stakeholders.

NGA also updates the electric grid operators regularly regarding the coordinating work of NGA's Gas Supply Task Force.

With natural gas remaining a significant fuel going forward for electric generation, coordination efforts such as these - both regionally and nationally - are to be encouraged.

For Further Information

EGOC

Northeast interstate pipelines' electronic bulletin boards (EBBs)

ISO New England

New York ISO

PJM

Northeast Power Coordinating Council (NPCC)

North American Electric Reliability Council (NERC)

Interstate Natural Gas Association of America (INGAA)

North American Energy Standards Board (NAESB)