Energy Transitions Begin to Leave Out Natural Gas Power

The world's energy transition took an interesting turn at the end of 2017 as global power firm Engie announced it would switch all its gas operations to biogas and renewable hydrogen, the UK slashed its outlook for gas-fired generation, and California regulators rejected proposed natural gas plant plans.

Engie's CEO Isabelle Kocher told reporters in early December that the firm will look to expand investments in biogas and industrial-scale hydrogen production, eventually switching all its current natural gas operations to 100% renewable gas by 2050. Engie recently moved to sell its upstream oil and gas business as well as divest its liquefied natural gas (LNG) production, shipping, and trading division as part of a wider restructuring effort.

In December, meanwhile, the UK Department of Business, Energy, and Industrial Strategy (BEIS) published projections that envision renewables overtaking gas's share of power generation by 2020. Significantly, BEIS said in its annual energy and emissions projections that half as much new gas capacity will be needed by 2035 compared to what was expected last year. The forecast factors in much more renewable capacity additions as well as energy storage, and it also relies on timely completion of proposed nuclear plants, though the government has approved only one to date-Hinkley Point C.

In California, where natural gas-fired power plants generated about half of the state's in-state power in 2016, state regulators were scheduled to vote in January on a proposal that would require Pacific Gas and Electric Co. to replace three natural gas plants owned by Calpine with energy storage and other carbon-neutral "preferred resources" like demand response. The state, which has ambitious renewable energy targets, has pushed utilities to replace natural gas power plants with renewables and other resources. The urgency to pare down the state's reliance on natural gas mounted in 2016 after the leaking Aliso Canyon natural gas storage facility was shut down. Last fall, the California Energy Commission said it planned to reject NRG Energy's proposed Puente natural gas plant because "feasible alternatives" that avoided or reduced environmental effects were available, forcing the company to withdraw its application.

The developments point to an interesting trend for gas-fired power generation, which has expanded globally by 20% since 2010, with nearly three-quarters of new capacity additions being flexible and highly efficient combined cycle gas turbine units. The expansion has been fueled by low natural gas prices as well an increasing availability of LNG from multiple producers.

A number of countries have also embarked on large-scale coal-to-gas switching recently, driven by a number of factors. Most prominent among them is the U.S., whose share of coal-fired power generation fell from 50% in 2006 to just over 30% in 2016, as natural gas's share rose to nearly 35%. While dramatically lower gas prices were the key catalyst for that change in the U.S., in the UK, a similar transformation, albeit on a smaller scale, was driven by different factors.

For the UK, which in April celebrated its first day without coal power since the Industrial Revolution began, gas has gradually overtaken coal's share of primary energy supply since 2000. Between 1970 and 1985, natural gas replaced coal to meet energy demand in buildings and industry sectors. Gas use for power was only permitted in the early 1990s. A subsequent "dash-for-gas" resulted in the construction of around 20 GW of new gas capacity. The UK's recent embrace of gas stems from a 60% drop in coal consumption in 2016, driven mainly by a fall in gas prices but also by a relatively robust carbon price and a commitment to phase-out all coal power by 2025.

According to the International Energy Agency (IEA), a factor common to both the U.S. and UK is that both countries have established liberalized electricity markets, allowing for a smooth transition in the power sector. "Most developing economies with large coal-fired power fleets do not have liberalised markets that would allow a quick response (in terms of generation mix) to economic conditions favouring the use of gas, nor (with the notable exception of China) is a CO2 price on the horizon," it said in its recent World Energy Outlook 2017. "Switching is therefore more likely to occur because of an explicit decision to favour the use of gas and to invest in new gas infrastructure (as seen, for example, by the coal-to-gas switching that occurred in the United Kingdom between 1970 and 2000)."

China, for example, will nearly triple its natural gas consumption through 2040, the IEA forecasts, owing to stringent measures to reduce air pollution for coal-fired power plants. India, though stricken by gas shortages, has also proposed raising the share of gas generation from 6.5% to 15%. This January, the government urged state-owned gas firm GAIL to focus on building gas pipelines in eastern India.

The world's power sector is, however, witnessing prospects where some renewable technologies will fall below the level of thermal generation, the IEA points out. Under a scenario that factors in current and proposed policies, the IEA estimates that for now, gas-fired power generation is set to increase by close to 60% through 2040, mainly because "gas-fired capacity also plays an important additional role in helping integrate variable renewables in power systems." Still, gas's share of total electricity supply will hold steady at about 23%, any gains sliced away by renewables and nuclear (Figure 2).

2. Ups and downs for gas power. Current and proposed policies could reshape the power mix, nearly doubling the share of renewables and driving down coal's contributions by 2040, the International Energy Agency (IEA) projects. Several regions around the world will boost their natural gas share-including the Middle East, North Africa, Mexico, and Caspian countries-but gas's share will diminish or remain steady in other regions like Japan, which is planning a re-introduction of nuclear, and in the European Union, which is committed to a low-carbon future. Courtesy: OECD/IEA, World Energy Outlook 2017, Figure 6.14, "Share of total generation by type worldwide and in selected regions in the New Policies Scenario."

-Sonal Patelis a POWER associate editor.

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