POWER September 2011 - 69

NATURAL GAS
recovery for " upstream " variable management
gas costs. Several commenters in the
pending rulemaking on VERs electric integration
costs have urged FERC to open a
separate rulemaking docket to address and
resolve such upstream cost recovery issues.
Some commenters, including gas pipeline
owners, have urged FERC to treat all gas
costs associated with firming reserves as
a cost of regulation reserve service and to
find that such costs should be allocated to
those receiving the service. FERC has yet
to act on such requests.
This regulatory uncertainty may translate
into inadequate financial incentives to construct
not only new firming-capable generation
but also the pipeline services or capacity
to provide quick-response fuel supply so that
adequate back-up generation capacity is
available and can be relied upon.
The absence of such a " holistic " approach
could create unanticipated electric system reliability
issues as VERs generation capacity
continues to grow in response to the federal
and state incentive programs mentioned earlier.
The omission of gas firming costs in the
cost of VERs generation could also lead to
an unintentional understatement of the actual
cost of renewable generation.
Looking down the road, a recent study
on wind integration, prepared for ISO New
England ( " New England Wind Integration
Study, " Dec. 5, 2010), raises concern that a
decline in revenues for gas-fired resources
due to such unintentional subsidization
could adversely affect gas-fired resources'
future economic viability and that " [a]s
wind penetration increases, the market design
may need to evolve to incent resources
to provide the flexibility required to
balance net load and dispatchable resources. "
Otherwise, the addition of substantial
VERs generation, with its low operating
costs, could eventually displace other resources
with higher operating costs, such
as gas-fired generation.
Expensive New
Generation Required
At this juncture, it remains difficult to get a
good fix on how expensive a problem this
will be to resolve. Costs will necessarily vary
by region. Costs will depend on the amount
of incremental gas-fired generation needed
to firm up the VERs load coming online in
a particular balancing authority area. If existing
combined cycle units are already operating
in a region's balancing authority area,
have excess capacity, and can be modified to
also run in simple cycle operation, that regional
balancing authority area may not need
new gas-fired units to firm up added VERs
generation. However, if new gas-fired units
are needed, there could be substantial gas
interconnection costs, particularly if existing
pipeline laterals must be expanded or new
laterals constructed to provide gas service to
the new facilities.
Conversely, other factors may reduce the
need for new gas-fired generation to firm
up VERs generation. There are proposals to
expand existing balancing authority areas in
some regions so as to reduce reliability impacts
associated with VERs integration, and
thus lessen the need for additional regulation
reserves.
The level of required gas-fired generation
will also depend on the amount (in absolute
and percentage terms) of VERs generation
to be added to the existing mix of generation
within a regional balancing authority
area and whether the transmission operator
1. U.S. natural gas pipeline system. This map shows interstate pipelines (blue) and
intrastate pipelines (red) as of 2009. Source: U.S. Energy Information Administration
has other available methods to firm up VERs
generation without adding energy infrastructure,
such as demand response.
In regions with substantial hydropower
resources, the possibility of " environmental
redispatch " decisions, which shut down
wind resources in favor of hydroelectric
resources to avoid adverse environmental
effects, could reduce the pace of wind
energy growth and thus the need for additional
firming resources. Tighter restrictions
on out-of-state imports of wind into
major markets such as California could
also reduce new wind demand.
More Gas Infrastructure Required
Yet a March 2011 study from the gas trade
organization Interstate Natural Gas Association
of America (INGAA) Foundation
Inc. ( " Firming Renewable Electric Power
Generators: Opportunities and Challenges
for Natural Gas Pipelines " ) suggests that
between $2 billion and $15 billion in new
gas infrastructure will be needed over the
next 15 years to support VERs firming
generation requirements. To serve this new
generation load, which INGAA estimates
at 33 GW (45,500 GWh), this study estimates
that the gas pipeline industry will
need to provide almost 5 Bcf/day of incremental
delivery capacity and that incremental
gas consumption could reach 440
Bcf/day by 2025-almost 2% of current
annual gas usage in the U.S.
These are staggeringly large numbers that
arguably do not give enough consideration
to the ability of gas-fired generators to work
with pipelines to utilize existing gas infrastructure
and transport services to provide
the level of regulation reserves required (Figure
1). And it is not surprising that a study
sponsored by the gas pipeline industry would
envision the need to construct vast amounts
of infrastructure to transport gas to new fastramping
gas generators.
This study has been criticized by the American
Wind Energy Association (AWEA),
among others, as vastly overstating the impacts
of VERs such as wind and ignoring
the fact that there are many sources of variability
and uncertainty on the grid and that
they often cancel each other out. Somewhat
inconsistently, AWEA also maintains that the
substantial infrastructure improvements the
INGAA study projects will be needed even
in the absence of wind energy.
Another eye-opening element of the INGAA
study is the projected cost of a pipeline
transport service designed to allow a
generator to quickly ramp up or down its gas
usage, depending on VERs load-following
requirements. Such service would need to be
available on a firm, uninterruptible basis, and
68
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POWER September 2011

Table of Contents for the Digital Edition of POWER September 2011

Contents
POWER September 2011 - Cover1
POWER September 2011 - Cover2
POWER September 2011 - Contents
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