The Rise of Distributed Natural Gas Generation

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The power sector has increasingly turned to various forms of distributed generation to meet growing power demands over the past several decades. Although solar PV and other renewable technologies receive most of the coverage, they represent only a fraction of the distributed market.

Diesel generator sets (gensets) have long been the face of distributed generation. However, as a result of various factors, including increasingly stringent environmental regulations and cheap natural gas, the market is opening to other technologies. The main beneficiaries of this market shift are natural gas-powered technologies, such as natural gas gensets, fuel cells, and microturbines, otherwise known as distributed natural gas generation (DNGG) technologies.

A Growing Market Despite Barriers

Navigant Research, a Guidehouse company, expects the DNGG market to reach $6 billion in annual revenue and roughly 18,000 MW of annual capacity additions by 2028. The key market driver for DNGG technologies is demand for compact, resilient, dispatchable power-a phenomenon that has remained relatively constant for many decades. Overall, the demand for distributed reliable power is growing globally. As low-income countries develop, reliable power is a precursor for economic success and development. Reliability is especially critical as climate change drives up the intensity and frequency of extreme weather events in both developed and developing countries.

Although DNGG technologies are gaining prominence, barriers still prevent further market integration. These barriers include lack of access to the natural gas grid, fossil fuel opposition, high capital cost (compared with diesel gensets), and limited knowledge of the benefits of DNGG technologies compared with alternatives. Expansive natural gas grids in developed countries have been driving the adoption of DNGG technologies, though slow growth in the developing world is expected to keep diesel the leader in gensets for the foreseeable future. Further development of global natural gas infrastructure (such as pipelines, processing facilities, and storage) will be imperative for market growth.

Applications Beyond Natural Gas Gensets

Natural gas gensets command most of the DNGG market because they are the most mature and inexpensive of the three main DNGG technologies. However, fuel cells and microturbines have ample room to deliver value as well. Despite the higher capital costs, fuel cells have cleaner emissions profiles than natural gas gensets and have strong research and development backing, especially in the transportation space.

Microturbines are small-scale systems, typically ranging between 30 kW and 250 kW. One of the most common applications for microturbines is remote power, where there is no grid to compete against, particularly oil and gas fields. The efficiency (if also using waste heat), reliability, and low maintenance requirements of microturbines can be extremely valuable for users.

Synergies with Renewables

Small-scale renewables (such as PV with energy storage) are also of interest to consumers as a reliable power option, thus driving competition in the distributed generation marketplace. Although these renewable technologies are expected to siphon DNGG market share, they also represent a growth opportunity because the technologies are often complementary.

In the wake of long-duration outages, such as those experienced in California as part of the planned power shutdowns that left upwards of 3 million people without power, battery storage systems cannot cost-effectively provide power. In these instances, distributed energy systems can be configured with a mix of renewables and natural gas gensets to provide power at critical times while maintaining a cleaner emissions profile than solely fossil-based generation, as covered in a recent Navigant Research white paper.

DNGG Technologies Supporting the Energy Transition

DNGG technologies are poised to supplement the changing energy sector and experience steady growth as a result. It will be crucial for all stakeholders to consider the benefits of DNGG technologies as power solutions. Utilities and independent power producers should include gensets when considering natural gas peakers for grid support. Gensets provide reliable, dispatchable capacity-an ever-important need as on- and off-grid applications continue to electrify with intermittent renewables. Energy storage systems have made significant strides in cost reductions but are not currently viable solutions for long duration outages. As energy storage costs continue to decline, natural gas gensets can help bridge the gap as a reliable power solution during the energy transition.

Industry stakeholders should also prepare for aggressive cost reductions in the fuel cell industry. Fuel cell electric vehicles are heavily subsidized, leading to spill over and improvements in stationary applications. While fuel cells are still significantly more expensive per kilowatt than their natural gas genset counterparts, the drive toward decarbonization will likely lead to fuel cells gaining greater market share over the next decade. Microturbines are expected to continue to capitalize on niche markets and can be instrumental for applications in remote locations or those with high thermal demands.

A confluence of factors, including cheap natural gas, infrastructure development, and a stricter regulatory environment, provide DNGG technologies an opportunity to be a key source of reliable power across all segments. The developed world is expected to continue to adopt DNGG as electric grid infrastructure ages, emissions mount, and reliability comes to the fore. In the developing world, growth is expected to be driven by vastly expanding energy needs as electrification continues. DNGG technologies are anticipated to be a fundamental component for reliable power needs as the energy sector continues to decentralize and decarbonize.

-Shayne Willette is a research analyst contributing to Navigant Research's Generation service. His research focuses on microgrids, distributed renewables, wind technology, and distributed natural gas generation.

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