Natural Gas to Provide Bulk of New Capacity

Source: Mavis Scanlon, Energy Prospects West  (8/8/12)

"North America could see 112 GW of new renewable-energy capacity by 2037, but the continent could see more than three times as much new capacity from natural gas-fueled generation over the same period."

North America could see 112 GW of new renewable-energy capacity by 2037, driven in part by state renewable portfolio standards, but the continent could see more than three times as much new capacity from natural gas-fueled generation over the same period.

That's according to the midyear Energy Market Perspective report from engineering and consulting firm Black & Veatch. The 2012 midyear update reflects a more rapid shift to gas than was anticipated just last year, Black & Veatch executives said at an Aug. 1 press breakfast to discuss the company's findings.

The development of shale-gas resources—the Energy Information Administration estimates U.S. recoverable gas resources exceed 2,200 Tcf, a 90-year supply—has led to expectations of low gas prices for years to come.

Just a few years ago, no one foresaw gas prices under $3/MMBtu, said John Chevrette, president of management consulting at Black & Veatch. That "has led to a fundamental shift in the way [utilities] think about generation," he said.

Low gas prices coupled with U.S. Environmental Protection Agency regulations aiming to reduce criteria air pollutants are drivers for expected coal-plant retirements in coming years. Black & Veatch expects 61.5 GW of coal-plant retirements by 2020; that forecast does not include expected retirements driven by potential greenhouse-gas emissions regulations, the report noted.

Renewables will help close the gap, although Black & Veatch expects most new generation in coming years to be gas-fired.

"When it comes to new generation it's going to be gas," said Dean Oskvig, president and CEO of Black & Veatch's global energy business.

Natural gas now accounts for about 35.9% of U.S. generation capacity, with conventional coal accounting for about 29.6 percent. By 2037, Black & Veatch expects natural gas generation to top 55%, with conventional coal generation dropping to 13.3% of the capacity mix.

Black & Veatch projects gas demand from the power sector to grow about 2% a year, translating to more than 380,000 MW of new capacity before 2037. That is 27% higher than the company's previous forecast.

Renewables, mostly wind, will also play a role. The midyear report forecasts renewables capacity to grow to 182,833 MW, or about 13.3% of U.S. capacity mix, in 2037, up from 70,588 MW, or about 6.6%, in 2013.

In planning for larger amounts of intermittent renewables capacity on the grid, a lot of focus has been on ensuring the availability of backup generation needed during peak periods. But another big question looming for the power sector is how to handle large amounts of renewables during periods of low loads. In spring months, when it is windy and when hydroelectric generation is high due to runoff, where does excess power go?

"Nuclear plants can't ramp down," said Ryan Pletka, director of renewable energy strategic planning at Black & Veatch.

Indeed, the way the grid was developed, in a balkanized fashion, has hindered the ability to move power from region to region, Oskvig said. "We can avoid building a lot of new generation if we could use what we have more economically."

The company expects nuclear capacity to drop as a percentage of the country's overall capacity mix by 2037. Nuclear capacity two decades out is forecast to be 79,911 MW, or about 5.8% of capacity mix, compared with 102,576 MW, or 9.6%, in 2013, the report states.

The economy and low gas prices have both helped slow nuclear development, the company said. The heavy capital costs involved in building new nukes mean that only the largest utilities with healthy balance sheets can take on the expense. At a capital cost of $7 to $8 per kW, "one project might be a utility's whole balance sheet," Oskvig said. It takes a Southern Co., Duke Energy, Entergy or PG&E Corp. to do that, he added.

That means "relicensing the existing fleet becomes more critical," Chevrette said. "We're probably not going to build as many nuclear plants."

Mavis Scanlon
Energy Prospects West