Energy regulators should recognize natural gas is key to reliable grid

Energy regulators should recognize natural gas is key to reliable grid
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In a little over a month’s time, the Federal Energy Regulatory Commission is due to make a decision that could fundamentally alter the way that energy markets operate in much of the United States.

FERC is due to respond to a directive from the Department of Energy calling on it to develop new tariffs which will compensate power plants which can “withstand major fuel supply disruptions caused by natural or man-made disasters” by Dec. 11.

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The department’s notice specifically defines these facilities as those “able to provide essential energy and ancillary reliability services and have 90-day fuel supply on site in the event of supply disruption.”

 

While the on-site fuel requirement may seem arbitrary, it’s in fact a thinly veiled attempt to bail out aging coal and nuclear facilities that have struggled to compete with lower cost fuel alternatives like natural gas and are consequently being forced out of the market.

There are a number of issues with the department’s directive (everyone from a group of former FERC commissioners to an ice cream company have raised concerns), but in essence they can be boiled down to two core questions: Is the reliability and resilience of the grid really under threat? And if so will on-site fuel supply actually resolve the problem?

The answer to both of those questions is a resounding “no.”

Citing power outages during the 2014 Polar Vortex as its justification, the Department of Energy’s central premise is that the replacement of so-called baseload coal and nuclear plants by other, lower cost resources — primarily natural gas which has grown exponentially over the last decade — represents an existential threat to system reliability.

But the facts simply don’t support this argument — natural gas has been a major contributor, not vulnerability, to grid resilience.  As a case in point FERC’s staff found that the industry met its ‘firm’ contractual responsibilities in 2014, and that it was only interruptible agreements — which are by design breakable — which were not fulfilled. Indeed, it’s worth noting that even with the Vortex 99.79 percent of these firm, interstate pipeline contracts have been met over the last decade.

These findings were corroborated by PJM, the regional power operator for much of the affected region, whose post storm report concluded that natural gas was one of three technologies that performed beyond expectations.

It is telling that the same cannot be said of “resilient” on-site fuel resources. During the Vortex, 14GW of coal and 1.4GW of nuclear were taken off-line as facilities struggled to deal with low temperatures and frozen piles of coal that couldn’t be combusted. That experienced was echoed during Hurricanes Harvey and Irma this year, when both Florida’s nuclear facilities were shut down and utilities had to shift to using natural gas as a result of soaked coal piles.

Put simply, there is no evidence to show that facilities with 90-days of fuel on-site are more reliable than natural gas as a generation source — a point borne out by the experience of markets like California, which have very limited nuclear and coal fleets, but still report no observable indications of resiliency problems from a lack of on-site fuel.

To be clear, this opinion is not intended as an attack on the coal or nuclear industries. The Natural Gas Supply Association supports fuel diversity and use of a mixed portfolio of resources and technologies, in our nation’s electricity grid.

But crucially we do so within the confines of the market. All resources should compete in a fuel-neutral framework based on their ability to provide the required services. The market is much better at making those determinations than policymakers.

FERC has a long history stretching back decades of supporting a fair, non-discriminatory electricity market as a means of fostering innovation and delivering the lowest cost energy for consumers. When the commission announces its response on Dec. 11, it will hopefully continue this tradition and reject an intervention that is clearly more about campaign promises than about ensuring a transparent, equitable and reliable power market. 

Dena E. Wiggins is president and CEO of the Natural Gas Supply Association, representing major integrated and independent natural gas producers in the United States.