Natural Gas and Power Sector Decarbonization Pathways: Three Snapshots from Recent JISEA Research

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1 and Power Sector Decarbonization Pathways: Three Snapshots from Recent JISEA Research Jeffrey Logan, Wesley Cole, and Jacquelyn Pless April 13, 216

2 Presenters Jeffrey Logan has over 2 years of experience in energy analysis, project management, and strategic planning. He specializes in energy policy analysis, low-carbon energy market development, greenhouse gas abatement, and energy security. At the National Renewable Energy Laboratory (NREL) since 28, he currently leads a group of 25 analysts focusing mainly on strategic electric power policy issues. He leads novel work at NREL on the impacts of unconventional natural gas on energy markets, including renewables. Wesley Cole is an energy system modeler and analyst in the Strategic Energy Analysis Center at NREL. He specializes in dynamic and steady-state modeling of energy systems, optimization and advanced control of energy systems, and integrated energy system analysis. His primary research interests include interactions of the natural gas supply chain with the deployment of renewable energy technologies. Jacquelyn Pless is a research economist at the Joint Institute for Strategic Energy Analysis (JISEA). Her research combines empirical evidence and economic theory in the areas of energy and environmental economics, public economics, and behavioral economics to help inform the design of effective policy and business strategy and improve quality of life. JISEA Joint Institute for Strategic Energy Analysis 2

3 Regional and Sectoral Trends in U.S. Electricity Markets: Focus on Jeffrey Logan April 13, 216

4 Outline National Trends Regional Trends by NERC Region Sectoral Trends JISEA Joint Institute for Strategic Energy Analysis 4

5 Outline National Trends Regional Trends by NERC Region Sectoral Trends JISEA Joint Institute for Strategic Energy Analysis 5

6 U.S. Generation by Fuel Type 2, 1,5 Terawatt-hours 1, Nuclear 5 Hydro Non-Hydro Renewables The U.S. Power Sector Is Undergoing Profound Transformation Source: Electric Power Monthly, EIA. JISEA Joint Institute for Strategic Energy Analysis 6

7 Generation Shares 6% 5% Percentage of Total 4% 3% 2% Hydro Nuclear 1% % Non-hydro RE , And Non-hydro Renewables Are The Most Dynamic Source: Electric Power Monthly, EIA. JISEA Joint Institute for Strategic Energy Analysis 7

8 Net Capacity Additions by Fuel Type 7 Biomass Nuclear Hydroelectric Wind Solar Geothermal Other 6 5 Net Capacity Additions (MW) Source: EIA. Nearly 35 GW of Retired in Past 4 Years JISEA Joint Institute for Strategic Energy Analysis 8

9 U.S. Shale Production Shale Gas Supplied 58% of Total Dry Production in 215 Source: Weekly Update, EIA. JISEA Joint Institute for Strategic Energy Analysis 9

10 Outline National Trends Regional Trends by NERC Region Sectoral Trends JISEA Joint Institute for Strategic Energy Analysis 1

11 Map of Reliability Organizations JISEA Joint Institute for Strategic Energy Analysis 11

12 Generation Mix By Region Northeast, Florida and Texas Dominated by NG; Midwest and Southeast by Source: SNL Financial. JISEA Joint Institute for Strategic Energy Analysis 12

13 Southeast Region SERC Annual Generation by Fuel Terawatt-hours (TWh) Other Fuel Geothermal Solar Wind Water Uranium Biomass JISEA Joint Institute for Strategic Energy Analysis 13 Source: SNL Financial. SERC Capacity by Fuel gigawatts (GW) 35 Historical Planned Other Fuel Geothermal Solar Wind Water Uranium Biomass

14 Southeast Region SERC Annual Generation by Fuel Terawatt-hours (TWh) Other Fuel Geothermal Solar Wind Water Uranium Biomass Dominant, But Declining Strong Growth in NG Generation Only Region with New Nuclear Coming RE Growing Strongly But From Very Low Base Source: SNL Financial JISEA Joint Institute for Strategic Energy Analysis Generation: -11% NG Generation: +51% Non-hydro RE: +52% Total Demand: +5% SERC Capacity by Fuel gigawatts (GW) 35 Historical Planned Other Fuel Geothermal Solar Wind Water Uranium Biomass

15 Reliability First Region RFC Annual Generation by Fuel terawatthours (TWh) 12 Other Fuel 1 Geothermal 8 Solar Wind 6 Water Uranium 4 Biomass 2 RFC Capacity by Fuel gigawatts (GW) Historical Planned Source: SNL Financial. 25 Other Fuel Geothermal 2 Solar Wind 15 Water Uranium 1 Biomass JISEA Joint Institute for Strategic Energy Analysis 15

16 Reliability First Region RFC Annual Generation by Fuel terawatthours (TWh) Other Fuel Geothermal Solar Wind Water Uranium Biomass Remains Dominant But Strong to NG Re-dispatch Strong Wind Power Growth From Low Base Flat Demand Growth Source: SNL Financial JISEA Joint Institute for Strategic Energy Analysis Generation: -15% NG Generation: +85% Non-hydro RE: +12% Total Demand: +1% RFC Capacity by Fuel gigawatts (GW) Historical Planned 3 Other Fuel Geothermal Solar Wind Water Uranium Biomass

17 Western Region WECC Annual Generation by Fuel terawatthours (TWh) 8 7 Other Fuel 6 Geothermal Solar 5 Wind 4 Water 3 Uranium Biomass 2 1 WECC Capacity by Fuel gigawatts (GW) Historical Planned Other Fuel Geothermal 2 Solar Wind 15 Water Uranium 1 Biomass 5 JISEA Joint Institute for Strategic Energy Analysis Source: SNL Financial.

18 Western Region WECC Annual Generation by Fuel terawatthours (TWh) Declining and Gas Generation Strong Growth in RE, Especially Solar Flat Demand Growth Other Fuel Geothermal Solar Wind Water Uranium Biomass JISEA Joint Institute for Strategic Energy Analysis Source: SNL Financial Generation: -6% NG Generation: -2% Non-hydro RE: +92% Total Demand: +2% WECC Capacity by Fuel gigawatts (GW) Historical Planned 3 Other Fuel Geothermal Solar Wind Water Uranium Biomass

19 Outline National Trends Regional Trends by NERC Region Sectoral Trends JISEA Joint Institute for Strategic Energy Analysis 19

20 U.S. Demand by Sector 12 U.S. Demand By Sector Billions of Cubic Feet (BCF) per Year Electric Power Industrial Residential Commercial Lease and Plant Fuel Pipeline and Distribution Vehicles Industrial Gas Demand Has Rebounded Since 21, but Electric Power Demand Growth is Strongest Source: EIA. JISEA Joint Institute for Strategic Energy Analysis 2

21 U.S. Net Trade Source: Annual Energy Outlook, EIA. U.S. Expected To Become Significant Gas Exporter By 22 JISEA Joint Institute for Strategic Energy Analysis 21

22 NG Storage Outlook High Projected Storage Levels Will Keep Downward Pressure on Prices Source: Short Term Energy Outlook, EIA. JISEA Joint Institute for Strategic Energy Analysis 22

23 Conclusions Significant shift from coal to natural gas generation occurring, mainly in eastern half of country (re-dispatch mostly) Strong growth in wind and solar generation, especially in western half of country, but growing everywhere Modest rebound in overall industrial NG demand Publication available here: JISEA Joint Institute for Strategic Energy Analysis 23

24 Additional Regional Slides Northeast Midwest Florida Southwest Texas JISEA Joint Institute for Strategic Energy Analysis 24

25 Northeast Region NPCC Annual Generation by Fuel terawatthours (TWh) 35 3 Other Fuel Geothermal 25 Solar 2 Wind Water 15 Uranium 1 Biomass Source: SNL Financial. NPCC Capacity by Fuel gigawatts (GW) 9 Historical Planned 8 Other Fuel 7 Geothermal 6 Solar Wind 5 Water 4 Uranium 3 Biomass JISEA Joint Institute for Strategic Energy Analysis 25

26 Northeast Region NPCC Annual Generation by Fuel terawatthours (TWh) Other Fuel Geothermal Solar Wind Water Uranium Biomass Becoming Increasingly Reliant on NG Gen Small But Important in Winter Nearly Gone RE Growing Strongly But From Low Base Demand Down from 25 Peak Source: SNL Financial. NPCC Capacity by Fuel gigawatts (GW) JISEA Joint Institute for Strategic Energy Analysis Generation: -62% NG Generation: +12% Non-hydro RE: +148% Total Demand: -2% Historical Planned Other Fuel Geothermal Solar Wind Water Uranium Biomass

27 Midwest Region MRO Annual Generation by Fuel terawatthours (TWh) 25 Other Fuel 2 Geothermal Solar 15 Wind Water 1 Uranium Biomass Source: SNL Financial. MRO Capacity by Fuel gigawatts (GW) 8 Historical Planned 7 Other Fuel 6 Geothermal Solar 5 Wind 4 Water Uranium 3 Biomass JISEA Joint Institute for Strategic Energy Analysis 27

28 Midwest Region MRO Annual Generation by Fuel terawatthours (TWh) Remains Dominant Modest to NG Re-dispatch Strong Wind Power Growth Nuclear at Risk Source: SNL Financial. Other Fuel Geothermal Solar Wind Water Uranium Biomass MRO Capacity by Fuel gigawatts (GW) JISEA Joint Institute for Strategic Energy Analysis Generation: -6% NG Generation: +31% Non-hydro RE: +15% Total Demand: +6% Historical Planned Other Fuel Geothermal Solar Wind Water Uranium Biomass

29 Florida FRCC Annual Generation by Fuel terawatthours (TWh) 25 2 Other Fuel Geothermal 15 Solar Wind Water 1 Uranium Biomass FRCC Capacity by Fuel gigawatts (GW) Historical Planned 7 Source: SNL Financial. 6 Other Fuel Geothermal 5 Solar 4 Wind Water 3 Uranium Biomass JISEA Joint Institute for Strategic Energy Analysis 29

30 Florida FRCC Annual Generation by Fuel terawatthours (TWh) Other Fuel Geothermal Solar Wind Water Uranium Biomass Generation: -7% NG Generation: +29% Non-hydro RE: +1% Total Demand: +4% FRCC Capacity by Fuel gigawatts (GW) Historical Planned 7 Heavily Reliant on NG, and Increasing Basically Gone Almost No Renewables Source: SNL Financial JISEA Joint Institute for Strategic Energy Analysis Other Fuel Geothermal Solar Wind Water Uranium Biomass

31 Southwest Region SPP Annual Generation by Fuel terawatthours (TWh) 25 Other Fuel 2 Geothermal Solar 15 Wind Water 1 Uranium Biomass Source: SNL Financial. SPP Capacity by Fuel gigawatts (GW) 8 Historical Planned 7 Other Fuel 6 Geothermal Solar 5 Wind 4 Water Uranium 3 Biomass JISEA Joint Institute for Strategic Energy Analysis 31

32 Southwest Region SPP Annual Generation by Fuel terawatthours (TWh) Dominant, But More NG Capacity Significant Drop in NG Generation Strong Growth in Wind Flat Demand Source: SNL Financial. Other Fuel Geothermal Solar Wind Water Uranium Biomass SPP Capacity by Fuel gigawatts (GW) JISEA Joint Institute for Strategic Energy Analysis Generation: -1% NG Generation: -1% Non-hydro RE: +29% Total Demand: +2% Historical Planned Other Fuel Geothermal Solar Wind Water Uranium Biomass

33 Texas TRE Annual Generation by Fuel terawatthours (TWh) 4 35 Other Fuel 3 Geothermal Solar 25 Wind 2 Water 15 Uranium Biomass Source: SNL Financial. TRE Capacity by Fuel gigawatts (GW) 14 Historical Planned 12 Other Fuel Geothermal 1 8 Solar Wind Water 6 Uranium Biomass JISEA Joint Institute for Strategic Energy Analysis 33

34 Texas TRE Annual Generation by Fuel terawatthours (TWh) Little Re-dispatch from to NG Strong Growth in Wind Fastest Growing Demand for Power Source: SNL Financial. Other Fuel Geothermal Solar Wind Water Uranium Biomass JISEA Joint Institute for Strategic Energy Analysis Generation: +1% NG Generation: +6% Non-hydro RE: +15% Total Demand: +12% TRE Capacity by Fuel gigawatts (GW) Historical Planned 14 Other Fuel Geothermal Solar Wind Water Uranium Biomass

35 Considering the Role of in the Deep Decarbonization of the U.S. Electricity Sector Wesley Cole, Ross Beppler, Owen Zinaman, and Jeff Logan April 13, 216

36 Introduction What is the role of natural gas in transitioning to a decarbonized power system? How does that role change according to the attractiveness of other decarbonization pathways? Energy Efficiency Low cost nuclear power Low cost renewable energy (wind and solar) Low cost carbon capture and storage (CCS) JISEA Joint Institute for Strategic Energy Analysis 36

37 Regional Energy Deployment System (ReEDS) Model Optimization model of U.S. Electricity Sector 134 Balancing Areas 356 Wind/CSP regions Explicit consideration of RE integration issues Solves combined capacity expansion and dispatch out to 25 under different assumptions Economic Technology Policy JISEA Joint Institute for Strategic Energy Analysis 37

38 CO 2 Emission Target Trajectories Mid = 41.5% reduction in 25 from 25 levels Low = 83% reduction in 25 from 25 levels CO 2 Emissions (billion metric tons) Historal (adjusted) Mid Target Low Target JISEA Joint Institute for Strategic Energy Analysis 38

39 Scenarios Considered Scenario Name Scenario Summary Reference Mid Renewable Energy Costs from ATB, Conventional Capital and Fuel Costs and Demand Growth from AEO 215 Reference Scenario Low NG Price NG Prices from High Oil & Gas Resource Scenario in AEO 215 High NG Price NG Prices from Low Oil & Gas Resource Scenario in AEO 214 High EE No changes in end-use demand after 214 Low Nuclear Cost 3% reduction in nuclear capital costs relative to AEO 215 Low RE Cost Low CCS Cost Very Low CCS Cost Low Wind & CSP Cost Trajectories from the ATB; PV reaches $.75/W in 24 CCS Costs reach $4/metric ton of CO 2 Captured CCS Costs reach $1/metric ton of CO 2 Captured *The Clean Power Plan and the 215 tax credit extensions were not included in these scenarios JISEA Joint Institute for Strategic Energy Analysis 39

40 Summary of 23 Results Natural gas (NG) generation increases with the mid and low carbon targets NG generation appears to be more sensitive to NG prices rather than technology changes Generation in 23 (TWh) No Carbon Target Mid Carbon Target Low Carbon Target JISEA Joint Institute for Strategic Energy Analysis 4

41 Summary of 25 Results NG generation increases with a mid carbon target, but decreases with a low carbon target NG generation still most sensitive to NG prices than technology changes Generation in 25 (TWh) No Carbon Target Mid Carbon Target Low Carbon Target JISEA Joint Institute for Strategic Energy Analysis 41

42 NG Usage is Most Sensitive to NG Price Left: Range of NG generation under the four technology scenarios Right: Range of NG generation under the two NG price scenarios Generation (TWh) Low Carbon Target No Carbon Target Generation (TWh) JISEA Joint Institute for Strategic Energy Analysis Low Carbon Target No Carbon Target

43 CCS Can Change the Outlook for NG Generation (TWh) Under a low carbon target, NG usage increases over time with competitive CCS Low Target + Very Low CCS Cost Low Target + Low CCS Cost Reference - Low Carbon Target Reference - Mid Carbon Target Reference - No Carbon Target JISEA Joint Institute for Strategic Energy Analysis 43

44 More NG Generation Increases Flexibility For the same penetration of variable renewable energy, systems with more NG have lower curtailment Curtailment (TWh) High NG Price Reference Low NG Price Variable Renewable Energy Fraction of Load JISEA Joint Institute for Strategic Energy Analysis 44

45 Flexible System Reduces Storage Needs Systems with more NG generation require less storage Storage Capacity (GW) Low Nuclear Cost High NG Price Low NG Price Variable Renewable Energy Fraction JISEA Joint Institute for Strategic Energy Analysis 45

46 Summary Natural gas still provides a substantial amount of generation under a range of decarbonization scenarios Natural gas generation shows strong sensitivity to natural gas prices Natural gas with low cost CCS can lead to increased natural gas demand over time Natural gas can provide additional flexibility the reduces the need to employ other more expensive flexibility options JISEA Joint Institute for Strategic Energy Analysis 46

47 Additional Slides JISEA Joint Institute for Strategic Energy Analysis 47

48 Prices Natural gas prices are based on Annual Energy Outlook 214 (high) and 215 (low and reference) Electricity Sector Price (214$/MMBtu) High NG Price Reference NG Price Low NG Price JISEA Joint Institute for Strategic Energy Analysis 48

49 and Renewable Energy: Lessons Learned from Energy System Stakeholders & Quantifying NG-RE Investments Jacquelyn Pless April 13, 216

50 Overview Natural gas (NG) and renewable electricity (RE) as complements Lessons-learned from stakeholder workshops Quantifying the value of investing in NG and RE together at the project and system-wide levels Source: Cochran et al., 214 (JISEA report) JISEA Joint Institute for Strategic Energy Analysis 5

51 Synergies of and Renewable Energy: 36 Degrees of Opportunity Workshop Series New York City Washington DC San Antonio JISEA Joint Institute for Strategic Energy Analysis 51

52 Stakeholder participants Public utility commissions Independent system operators Utilities and other generators Investors Policymakers Renewable energy developers NG developers Original equipment manufacturers National laboratories Consulting agencies Universities and research institutions JISEA Joint Institute for Strategic Energy Analysis 52

53 Lessons-learned Opportunities for NG-RE synergies Large domestic resource base for both NG and RE Complementary risk profiles Energy investments are shifting Financing options are expanding Barriers to synergies Economic, technical, and political uncertainties Significant infrastructure investment needs NG-electric market coordination JISEA Joint Institute for Strategic Energy Analysis 53

54 Lessons-learned (cont.) Electric and gas coordination NG-RE integration and to avoid stranded capital Regional differences in market structures and fuel mixes necessitate a variety of solutions Flexible scheduling and nomination cycles, flexible inter-sector contracting arrangements, managing schedule changes intra-hour, etc. Importance of flexibility and diversification Enhances reliability and resiliency (growing need) Valuing flexibility with proper price signals Going beyond LCOE (portfolio management strategies) JISEA Joint Institute for Strategic Energy Analysis 54

55 Lessons-learned (cont.) Energy services provider of the future Creating value for the customer by focusing on reliability and affordability The consumer can create value Customers can offer services of value DR, storage, etc. can add flexibility Regulation and wider policy objectives Need market-enabling regulation and policy for NG-RE synergistic investments to be favorable Clean Power Plan, COP21, etc. JISEA Joint Institute for Strategic Energy Analysis 55

56 Revenue stream opportunities in the residential sector Examples of revenue opportunities from synergies in the residential sector 1) Utility-managed and financed distributed generation and demand response programs; 2) Privately owned/leased, third-party managed residential energy system; and 3) Neighborhood microgrid managed and operated by third-party energy management company for participation in power markets. Source: Cochran et al., 214 (JISEA report) JISEA Joint Institute for Strategic Energy Analysis 56

57 Distributed Solutions Case Study Overview Project-level valuation of case studies from the system owner s perspective Detailed hourly analysis over project life based upon simulated solar output and stochastic natural gas prices Focus on stand-alone systems composed of natural gas microturbines and solar photovoltaic (PV) systems Two applications: single residential home and a critical services building (hospital) Two locations: New York and Texas Methods: discounted cash flow and real options analysis Assumptions: system design, costs, performance, and finance structure JISEA Joint Institute for Strategic Energy Analysis 57

58 Example of Valuation Results Case-specific assumptions: Based in Suffolk County, NY Standard v. time-of-use electricity rates Baseline NG price volatility Net metering v. no net metering Single Residential Home Suffolk, NY System Design BAU NG-Only Solar+Gas BAU NG-Only RE-Only (electricity) Solar+Gas Electricity Rates Standard Standard Standard TOU TOU TOU TOU Net Metering No No No Yes Yes Yes Yes Initial Investment $ $34,32 $22,8 $ $34,32 $14,8 $17,92 NPV ($67,828) ($8,645) $2,694 ($66,491) ($9,981) ($38,181) $5,61 NPV (with incentives) $8,526 ($34,369) $9,75 Payback (years, w/o incentives) > Payback (years, w/incentives) 6.45 > Option Value (no incentives) $5,68 $24,426 $1,77 ($33,682) $47,972 JISEA Joint Institute for Strategic Energy Analysis 58

59 Example of Valuation Results Case-specific assumptions: Based in Suffolk County, NY Standard v. time-of-use electricity rates Baseline NG price volatility Net metering v. no net metering Critical Services Building (Hospital) Suffolk, NY System Design BAU NG-Only Solar+Gas BAU NG-Only RE-Only (electricity) Solar+Gas Electricity Rates Standard Standard Standard TOU TOU TOU TOU Net Metering No No No Yes Yes Yes Yes Initial Investment $ $2.21M $5.85M $ $2.21M $3.6M $5.85M NPV ($17.9M) $8.1M $6.99M ($18.M) $8.23M ($13.9M) $7.12M NPV (with incentives) $8.46M ($12.9M) $8.59M Payback (years, no incentives) > Payback (years, solar incentives) 3.25 > Option Value (no incentives) $14M $119M $15M ($15.6M) $121M JISEA Joint Institute for Strategic Energy Analysis 59

60 DG Valuation Key Observations Hybrid systems are generally favorable relative to stand-alone alternatives or BAU Some sensitivities: scale, gas demand, gas price volatility, efficiency of microturbines, availability of incentives for RE All DG cases studied are favored over BAU Importance of enabling policy environment JISEA Joint Institute for Strategic Energy Analysis 6

61 Pathways to a low carbon system Output from Renewable Electricity Futures Study 8% RE by 25 Bulk power system generation Wholesale market price/structure sensitivity (Not a detailed dispatch analysis) Given long term trajectory toward higher RE, are natural gas units profitable? Generation by Energy Resource: 8% by 25 (ITI Scenario) JISEA Joint Institute for Strategic Energy Analysis 61

62 Wholesale Natural gas CC with capacity payments No Capacity Payments With Medium Capacity Payments Discounted Cash Flows (213$) 1.75E+9 1.5E E+9 1.E+9 7.5E+8 5.E+8 2.5E+8.E+ (2.5E+8) Discounted Cash Flows (213$) 1.75E+9 1.5E E+9 1.E+9 7.5E+8 5.E+8 2.5E+8.E+ (2.5E+8) With Maximum Capacity Payments Discounted Cash Flows (213$) 1.75E+9 1.5E E+9 1.E+9 7.5E+8 5.E+8 2.5E+8.E+ (2.5E+8) JISEA Joint Institute for Strategic Energy Analysis 62

63 Thank you! Questions? These publications are available online at A Review of Sector and Regional Trends in U.S. Electricity Markets: Focus on Natural Gas: Considering the Role of in the Deep Decarbonization of the U.S. Electricity Sector: Pathways to Decarbonization: and Renewable Energy, Lessons Learned from Energy System Stakeholders: JISEA Joint Institute for Strategic Energy Analysis 63

64 Next Webinar Wednesday, April 2 at 1 a.m. MDT Environmental, Economic, and Technological Effects of Methane Emissions and Abatement With Garvin Heath, Ethan Warner, and David Keyser of NREL Register at JISEA Joint Institute for Strategic Energy Analysis 64