In a wide-ranging panel discussion at ABB’s Eastern Utility Executive Conference held in Pinehurst, North Carolina on Saturday, four industry executives -- Steve Whitley of the New York ISO, David DeCampli of PPL, Charles White of SCEG and Chuck Jones of First Energy -- were bound to get around to talking about natural gas.
But far from cheerleading the current glut, these utility leaders expressed concern about utilities becoming too dependent on one fuel.
Steve Whitley noted that while regulations will force the retirement of older coal-fired plants, low gas prices are already making them uneconomical. That has transmission implications as the geographic distribution of generation assets shifts, but perhaps a more immediate issue is reliability.
In short, gas supplies are not managed the way electricity is.
“There isn’t as much planning around pipelines. They don’t have n-1 criteria,” Whitley said, referring to the power industry maxim that system integrity should never be compromised by the loss of a single transmission line.
Indeed, the nation’s network of gas pipelines was built around commercial considerations, not to ensure the security of supply across the system as a whole. If in ten or twenty years we find our power grid is dependent on gas supplies, we could be confronted with some unpleasant choices.
NYISO’s Whitley also noted that there is currently a mass retrofit going on in buildings in New York as property owners shift from oil to gas. As another conference attendee later observed over lunch, in a pinch, gas companies are obligated to serve consumers first, so utilities could find themselves at the back of an increasingly long line.
In another lunchtime conversation, Lee Mazzocchi, Chief Procurement Officer at Progress Energy, noted that if you look at energy costs overall, variable costs like fuel make up only a small portion of the total. The majority is in fixed costs like power plants, transmission and distribution lines. Having a variety of fuel sources allows markets to dispatch the most economical generators, but the fixed costs remain and in fact are increasing.
Back at the panel, PPL’s David DeCampli emphasized the need for fuel diversity, and provided a cautionary tale drawn from his company’s history. After investing heavily in gas-fired generation over a decade ago, PPL ended up selling some simple-cycle turbines for a fraction of what they paid for them when fuel prices rose.
DeCampli didn’t specifically refer to putting the capex cart before the opex horse, but PPL’s experience certainly illustrates the risk. That and the reliability issues should give pause to anyone tempted to see gas as an energy cure-all. It has great potential as a stepping stone away from coal, but it’s not a panacea.
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Bob Fesmire is the Strategic Communications Manager at ABB.