Will natural gas kill the smart grid?

[Jesse Berst]

Natural gas is roughly $10.00 in Europe (where they get much of it from Russia). And roughly $2.50 in the U.S., where fracking and other drilling techniques have made America "the Saudi Arabia of natural gas."

In fact, natural gas is getting so cheap that it may become cheaper and faster to slap up a gas-fired peaking plant than to implement a complicated demand response project. Especially if that DR requires a massive upgrade; or complex software; or reliance on consumers to change their behavior; or all of the above. What's more, it may become much cheaper (and politically acceptable) to create gas-fired plants in place of wind and other variable renewables.

But wait... DR and renewables are two of the biggest drivers of the smart grid. Will natural gas alternatives make the smart grid too expensive by comparison?

[Don McDonnell]

Jesse:

When you picked up our blog on this same topic last summer we had a large number of emails indicating that our nuanced view was naive. Whether fracking proves to be as environmentally challenging as some suggest is an open question, but clearly gas is going to play an increasing role regardless. I don't think its going to kill smart grid development and in fact could help in many ways.

Here is the link to your story and to our blog: http://www.smartgridnews.com/artman/...grid-3796.html

There are some very useful graphics showing the trends in gas that would inform this discussion as well as some of our views.

Don

[Jeff Williams]

Will natural gas kill the smart grid?
I don't think the cost of natural gas or other fuel will significantly change the smart grid dynamic. Remember when nuclear power would make electricity "too cheap to measure"? That would have been the end of metering of any kind in the 1960s.
As long as the point can be made for prices differing hourly for electricity, the public case for smart metering will remain.
The other, and perhaps greater, value of smart metering, remotely shutting off individual customers, is unaffected by fuel prices.

[Lance McKee]

Do small co-gen systems for homes and businesses produce heat and power more efficiently than utility scale gas generating plants? If so, and if regulators thus allow ratepayer/generator-owners to gain a fair return on their generator investments, then cheap gas could boost the Smart Grid.

Just speculating: If technology (and thus productivity) are ramping too fast to allow laid-off victims of productivity to re-enter the workforce, and if the wealth and income gap become, partly for this reason, a critical social, political and economic (too little consumption) problem, then property owners and politicians might see ownership of income-producing generation assets, functioning in an open real-time electric power market, as a critical issue. In a prolonged Main Street takes vs Wall Street contest, utility business models could evolve from production + sale + transmission/distribution of electricity to sale + transmission/distribution or just transmission/distribution.

[Spencer Zirkelbach]

I don't think natural gas will kill the smart gird. There is always an environmental cost to using fuels to produce power and I believe that would be a major issue with natural gas. Also, I don't think there can ever be single answer to improving reliability and effeciency in the grid. Natural gas, in my opinion, may affect the way the smart grid develops, but I don't think it will kill it.

[Steve Lafond]

Cheap natural gas may increase distributed generation from fuel cells and combined heat and power. If so, this will drive SMART grid investment.

[David O'Brien]

No Jesse natural gas is not going to kill the smart grid. Firstly the smart grid is not simply a means to conserve energy or implement demand response. There is the whole world of distribution automation, synchro-phasers and advanced outage restoration etc. that is a natural digital evolution for the electric grid. Second as other posters have noted, energy prices. like the stock market, fluctuate, sometimes dramatically. When I first became a Commissioner "way" back in 2003 natural gas and by extension wholesale electric prices, were very cheap. Then gas prices took off and by mid decade we had super high prices and a lot of talk about siting Liquefied Natural Gas (LNG) terminals to bolster supply. Now thanks to shale gas stores, prices are again very low, but the point is they will change again. Demand and supply are always at it and with cheap natural gas folks are content to shut down coal and nuclear units because gas is seen as plentiful, but that ought to move the demand curve upward yet again.

Sources of electric supply will gain and lose favor over time, but the smart grid is no different than modernizing basic industry or consumer products, innovation and digital automation are inevitable.

[Dean Musser]

When the default assumption is that Demand Response and other smart grid programs can only be accomplished through “massive upgrades, complex software and consumer inconvenience” then there will always be more acceptable alternatives to customers. The problem is a centralized approach to the smart grid where fixing one immediate problem can only happen in the context of addressing all future problems. The solution is more customer-centric initiatives whose inherent benefits improve, but don’t absolutely rely on a smarter grid. For example, instead of responding to grid emergencies through a centralized DR program administered by utilities, why not invest in strategies to reduce volatility behind the meter – before it becomes a problem. Incentives and energy credits directed toward a comprehensive peak shaving program, augmented by clean, on-site generation would be a more strategic way to pre-empt grid emergencies without customer inconvenience. Moreover, instead of competing against low gas prices, the use of behind the meter gas-fired generators puts the smart grid in a position of benefiting from cheap, natural gas. In the end, the customer is always going to act in their own best interest. It’s time for the energy industry to start developing the grid in a way that takes that fact into account.

[Mani Vadari]

The key to note here is that demand response is one aspect of the Smart Grid (albeit called one of het low-hanging fruits). I thnk Natural gas will have three sets of impacts.

1) It will keep the cost of generation low. This means that there will less impetus to control demand because the business case behind demand response will be questioned.

2) It will bring in a new form of distributed generation - either through fuel cells or through other forms of gensets.

3) It is less polluting than coal-fired generation. Which means that there will be less opposition to generating with Natural gas allowing utilities to startup more generators - something they are more used to.

Just my two cents.

Mani

[Steve Pullins]

Jesse,
We must remember that the decisions makers in the industry are the same ones who built the last NG power plant bubble from the early 1990's to mid-2000's. That bubble cost us a $1trillion in capital outlay for a NG peaker fleet that is operating with a 10.1% capacity factor. Effectively a waste of nearly $1T. This is a decider group who are chiefly lawyers and investment bankers by training. Their outlook is quarterly, and their long-term horizon is the date of retirement or golden parachute. In the horizon of the next few years, NG prices are projected to be low (like now), but then go up to $6/mmBTU (Henry Hub spot) by 2025.

There is a fixed amount of capital that the CEO & CFO can risk without loosing their jobs. In the short term, these deciders will decide to use their capital to move from coal-based power plants (older) and justify replacing them with NG plants. They will look smart for about 8 years, which is long enough to escape the wrath of the public. So, come 2025, the cost of operating these plants will be double because of the fuel cost. Electric prices will go up under great bashing of teeth, because that move to more NG virtually eliminated the portfolio and put all the eggs in the NG basket. And the 2025 basket will be twice as expensive and much more volatile.

How does that affect the Smart Grid deployment? It is the shifting of Capital to the new NG plants today that will reduce the Capital available to achieve the Smart Grid deployments. The history and data shows that a rush to build NG plants will happen over the next 5 years, taking some or most capital away from the planned SG deployments. Will it stop? No. Will it slow? Yes.

Steve Pullins, Horizon Energy Group