(John Kemp is a Reuters market analyst. The views expressed are his own)
* Select bibliography: tmsnrt.rs/2kWfCIt
LONDON, Oct 17 (Reuters) - “The resiliency of the nation’s electric grid is threatened by the premature retirements of power plants that can withstand major fuel supply disruptions caused by natural or man-made disasters,” the U.S. Department of Energy warned last week.
Fuel security is the crux of the argument made by U.S. Energy Secretary Rick Perry in proposing a new grid resiliency pricing rule to save coal-fired and nuclear power plants from closure.
“Fuel-secure resources are indispensable for the reliability and resiliency of our electric grid,” the Department of Energy wrote in its justification for the proposed rule, which was gazetted in the Federal Register on Oct. 10.
Gas-fired power plants can generate large amounts of electricity and provide crucial reliability services to the grid, including frequency regulation, reactive power and voltage support, operating reserves and black start.
In most respects, gas-fired power plants, including highly efficient combined-cycle units, can provide generation and ancillary services more cheaply and flexibly than their coal-fired and nuclear counterparts.
But unlike coal-fired and nuclear power plants, gas-fired generators do not typically store large amounts of fuel on site, which makes them vulnerable to any disruption of their supply chain.
Gas-fired generators depend on “just-in-time” deliveries of fuel from gas pipelines so anything that restricts the availability of gas could become a problem for electric reliability.
The growing number of gas-fired power plants on the grid has increased the interdependency between the gas and electricity systems.
“Growing reliance on natural gas continues to raise reliability concerns,” the North American Electric Reliability Corporation (NERC) wrote in a synopsis of reliability issues prepared for the energy secretary.
The electric reliability risks have been extensively studied for a decade by state and federal regulators.
Some of the problems identified were fairly easy to resolve, such as differences in the operating and planning schedules of the gas pipeline operators and grid controllers.
Others are more tricky but restricted to specific local areas, such as the potential problems for generators caused by the leak from California’s Aliso Canyon gas storage facility.
The issue that has exercised regulators most, however, is the possibility of a widespread shortage of natural gas during the winter heating season that might leave generators unable to secure enough fuel.
The fear is that growing interdependency might leave regulators with a choice between keeping the lights on and keeping homes warm during the darkest and coldest days of winter.
Gas-fired generators must compete with other customers, including local gas distribution companies, for gas and transportation capacity on the pipeline networks.
Gas-fired generators’ need for gas peaks in summer, when there is plenty of gas and capacity available, but there is also a smaller peak in winter, when generators must compete with strong demand from customers who need gas for heating.
Reliability experts have expressed concerns about whether gas-fired generators would be able to secure enough fuel during a particularly cold period, when both electricity and gas systems would be stretched simultaneously.
2014 POLAR VORTEX
The Polar Vortex, which brought freezing temperatures across the entire eastern United States in January 2014, has become a particular focus of concern.
“During the polar vortex, the cold weather also increased demand for natural gas, which resulted in a significant amount of gas-fired generation being unavailable,” NERC wrote in a post-event study.
Many generators failed to start or were unable to operate at full capacity, leading to intense pressure on electricity supplies, although almost no firm load was disconnected.
Many units failed because of frozen equipment but at least some were unavailable due to fuel supply problems and the problem was especially pronounced for gas-fired units.
Gas-fired generators accounted for 55 percent of forced outages during the vortex, even though they represented only 40 percent of capacity in the impacted areas.
By contrast, coal-fired units accounted for 26 percent of outages and 31 percent of capacity, while nuclear generators suffered 3 percent of the outages but provided 12 percent of capacity.
Fuel supply proved especially problematic in the Mid-Atlantic and Great Lakes areas, where more than 10,000 megawatts of capacity was hit at the worst point.
The polar vortex of 2014 and its impact on gas supplies was specifically cited by the Department of Energy as a justification for its proposed grid resiliency rule.
But it is not the only time that unusually cold weather has disrupted power generation in the eastern United States.
For example, there were major cold weather incidents in Texas in 1983, 1989, 2003, 2006, 2008, 2010 and 2011, according to a joint report prepared for NERC and the Federal Energy Regulatory Commission.
Cold weather events of 1989 and 2011 were particularly severe, causing widespread power outages with rolling blackouts.
During the 2011 cold weather event, electricity supplies were cut to around 3.5 million customers in Texas and neighbouring states as utilities were forced to implement rolling blackouts.
In that respect, 1989 and 2011 were much worse than 2014, when the electricity grid came under pressure but there was no significant loss of firm load.
But problems in 1989 and 2011 were mostly caused by inadequate winterization and freezing equipment, not by fuel supply issues.
“Gas curtailment and gas pressure issues did not contribute significantly to the amount of unavailable generating capacity” in Texas in 2011, NERC experts concluded in a post-event review.
In 2014, too, there were widespread problems with equipment freezing, which cut available capacity across the eastern United States by almost 18,000 megawatts.
The increasing use of natural gas for power generation poses new and different challenges for grid reliability, which have been examined extensively by regulators and reliability experts.
But now the secretary of energy has intervened with a proposal that would try to protect the remaining coal and nuclear power stations and ensure they remain available in any future cold weather event.
The proposed resiliency rule is not unreasonable but it attempts to short-circuit the normal regulatory and reliability planning process with an expedited timeline for making a decision.
It also prescribes a particular solution (more coal and nuclear capacity) when other solutions might be available and cost less.
One option would be closer coordination and planning between the gas and electricity industries to ensure gas-fired plants have priority access to supplies during cold weather.
Another is to ensure that combined-cycle gas-fired plants have dual-fuel capability and store fuel oil on site to cope with any gas curtailments.
There is an increasing tension between using the technical regulatory process and power markets to maintain and improve reliability and resiliency or intervening directly.
“In general terms, there is no free market in the energy industry,” Perry has stated repeatedly when asked to defend his proposed grid rule.
Consultants from IHS Market have argued the electricity market is already so distorted by government interventions, particularly in favour of renewables, that price signals are not working properly.
IHS Market argued, in a study which appears to have influenced the secretary’s thinking, that existing distortions justify further government interventions to offset their impact and level the playing field.
By contrast, the Institute for Energy Research, which helped with the Trump transition, has criticised the attempt to introduce even more distortions to offset existing ones.
The institute wants reforms to make existing power markets work more effectively rather than replace them with even more regulations that favour some forms of generation over others.
The secretary’s proposed rule has deeply split the energy industry as well as regulators and reliability experts and is pitting some of the administration’s most ardent supporters against one another.
“Secretary Perry’s action ... is a long-overdue and necessary step to address the vulnerability of America’s energy grid,” the National Mining Association said in a statement welcoming the proposal.
But the American Petroleum Institute, representing oil and gas producers, was far more critical.
“We are concerned that the [Department of Energy] has mischaracterised the lessons learned from past weather-related events”, the institute said.
The institute warned against more regulatory intervention and urged the secretary to rule on market mechanisms instead.
Select bibliography on grid reliability and resilience:
“Trump tries to save coal, probably in vain”, Reuters, Oct. 11
“Perry’s proposed grid resiliency rule scrambles energy alliances”, Reuters, Oct. 3
“Perry puts thumb on the scale to save U.S. coal and nuclear”, Reuters, Sept. 29
“Coal’s problem is not climate change”, Reuters, Sept. 13
Editing by David Evans
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