As gas and renewables grow, should there be concern?

By Edward Klump | 02/26/2016 07:16 AM EST

HOUSTON — In a country where wind, solar and natural gas seemingly own the future of power generation, one question hung in the air here yesterday: “Are we losing fuel diversity, and should we be concerned about that?”

HOUSTON — In a country where wind, solar and natural gas seemingly own the future of power generation, one question hung in the air here yesterday.

"Are we losing fuel diversity, and should we be concerned about that?"

Doug Giuffre, the moderator for an electric market panel at IHS CERAWeek, posed the query and added that regional transmission organizations and the Federal Energy Regulatory Commission largely are fuel-neutral. He wondered if there could be a place for markets to put a value on diversity.


It was an important question at an energy conference stuffed with speakers who debated what many see as an inevitable push toward electricity fueled by gas and renewables in a lower-carbon future. There was talk of what this would mean for reliability.

Cheryl LaFleur, a FERC commissioner, tried to offer context on the fuel diversity question. She said there was a time maybe 30 years ago when that meant coal and nuclear and some hydro. Now, natural gas is seeing a lot of attention in the power sector.

"What really matters is what it is we’re trying to get out of the generation," she said. "If a lack of a certain kind of diversity affects reliability or affects cost stability or affects our ability to meet environmental requirements, that’s problematic."

It’s possible, LaFleur said, to make sure there’s value of diversity in a market rather than with a regulated selection process. So if baseload or ramping capacity were needed, the market could look for that.

Andy Ott, the CEO of PJM Interconnection LLC, a major regional grid operator, explained a goal more of operational diversity than fuel diversity, meaning there’s appropriate infrastructure in place for resilience, security and reliability.

"But to actually value fuel diversity just for the sake of it" is "probably not likely" in a market structure, he said. Ott said that would be more of a policy decision by politicians. PJM did go through a significant change in its fuel mix, without major price spikes or reliability problems, he said.

John Bear, CEO of the Midcontinent Independent System Operator Inc. (MISO), cited a focus on operational diversity and reliability. He said MISO would let states make decisions about fuel diversity.

"To the extent that we have nine or 10 plants show up behind one gas pipeline, we might have a lot more performance concerns about it than we do if we have one or two behind each of six pipelines," Bear said.

Pipeline opposition

A change from past fuel diversity discussions is a focus on reliability exposure, given the role of intermittent resources, as opposed to a focus on price exposure, according to Bill Magness, CEO of the Electric Reliability Council of Texas (ERCOT).

PJM’s Ott said gas infrastructure is going to be important for electric reliability. There will be a need at some point to say the lights will go out somewhere if a pipeline isn’t built within a period of time, he said.

"We on the electric side need to make sure we start articulating more and more, hey, this stuff matters" from a reliability perspective, he said.

LaFleur said there’s a "tremendous amount of opposition" to building pipelines, especially in the Northeast and Mid-Atlantic regions.

"So we’re having a little bit of a national debate about how much we want to rely on fossil fuels at the same time we’re closing a lot of the other resources that make us even more reliant on gas," she said.

LaFleur said coal units are retiring in light of low gas prices, as well as new environmental regulations. Nuclear retirements are happening, she said, because carbon benefits aren’t factored into the market through a nationwide plan such as carbon trading or a carbon tax.

"Right now, we don’t have a market-friendly carbon regime, and so we’re getting potential market dislocations that are inconsistent with other carbon objectives that the country has," she said. The stay of the Clean Power Plan, which aims to cut carbon dioxide emissions from power plants, could defer that further.

FERC Chairman Norman Bay, who also spoke here yesterday, outlined the extent of the nation’s changing fuel mix, as renewables and gas dominated new capacity installations last year.

About 18 percent of U.S. electricity came from gas in 2004, he said, before rising to 27 percent in 2014 and 32 percent last year.


Bay said he gets questions on whether FERC should be trying to ensure fuel diversity in its markets. He called that a "difficult proposition," citing the Federal Power Act in saying the commission doesn’t have the legal authority to favor one resource over another.

"As a matter of policy, FERC has been resource-neutral," he said, adding: "We don’t want to be in the position of having to try to pick the winners and the losers."

Bay said he didn’t know if FERC could do more beyond capacity performance designs that had been accepted.

"I’m sure that if certain stakeholders believe there’s more we should be doing, they’ll call those proposals to our attention," he said.

During a morning panel, Nick Akins, CEO of American Electric Power, said the industry and its customers are expecting a clean energy future and cited possible wind, solar and gas investments.

In competitive markets, Akins said, there needs to be a view to ensure a balanced portfolio that addresses different needs. He noted the possibility of more coal retirements and challenges facing nuclear plants. That could leave a dependence on renewables, natural gas and energy efficiency.

"The only one that can provide 24/7 supply and provide capacity and energy over that kind of framework is natural gas," he said.

He asked if the natural gas system is ready to be that resilient, citing pipeline infrastructure.

"Really, what you’re trying to do is ensure that people can invest in a credible fashion and get a multitude of different types of resources in these markets," he said.

Meanwhile, Tom Werner, CEO of SunPower Corp., said in an interview that solar has a large role to play, noting that fuel risk doesn’t exist because "sunshine is free." He said all other generation technologies won’t be eliminated, but storage and a two-way grid could help reshape the future.

If too much is produced in one location, "you could sell it to somebody next to you, so you can capably move energy around from overproduction areas to underproduction areas — in addition to storage," Werner said, but added: "There’s a reason why they call it disruption. It’s not going to be a nice, clean, seamless move."