While grid operators in the Northeast have taken steps to smooth out the kinks in electricity grids that are increasingly relying on natural gas-fired generation, further refinement of the U.S. natural gas and electricity grid systems is needed, FERC Commissioner Philip Moeller and other speakers told an industry forum Wednesday in Valley Forge, PA.
Speakers at PJM Interconnection’s Grid 2020 Focus on Gas/Electric Interoperability talked about actions needed to lessen the kind of strains on natural gas supplies for power generation that were experienced in recent extreme winters in New England. Those winter peakload constraints led to NE Power Pool’s Winter Reliablity program and PJM’s recently approved Capacity Performance program (see Daily GPI, June 11).
Moeller called for more creative ideas that are “needed desperately to keep the momentum going on these issues; everything changes if we have a big problem, and we will all be blamed.”
At the heart of the dilemma is what is perceived to be a “lack of flexibility” in the gas system and inadequate incentives for industry participants to resolve them, according to Gordon van Welie, CEO of New England ISO. PJM CEO Terry Boston said the gas and electric industries need to “work together to find more flexibility and reliability for consumers.”
PJM officials said that the focus of the stakeholder forum was driven by “the electric industry’s growing reliance on gas-fired generation.”
Separately, a Northeast-based energy attorney representing stakeholders in the NE Power Pool told NGI that debate is ongoing in the region about whether the new New England and PJM programs will provide enough incentives to drive more infrastructure development.
“It all revolves around the availability of gas transportation to get the supplies to market,” said David Doot, an energy/utility law partner at Day Pitney. The programs are spurring more interest among generators in developing backup fuel capability, he said.
Speakers at the forum noted that there are challenges associated with some gas-fired generators finding it more economical to operate as dual-fuel units rather than securing firm gas supply contracts, according to a PJM spokesperson.
Doot said that generators don’t know exactly when their power will be needed, but market changes drive more revenue into capacity payments. At the same time, revenue will be exposed to greater risks for having to return the monies and/or also pay penalties for nonperformance.
“It absolutely does create the desire [among generators] for some form of backup system,” Doot said. “It is one of the desired, least-cost options available.”
For Doot, there are still many unknowns, such as the overall impact on utility consumer electric rates from ongoing efforts to get generators to invest more in reliability assurances. If there is a run up in consumer rates, state regulators could push back against the grid operators’ programs.
This challenge, along with closer gas-electric grid coordination, are complex, and while Moeller thinks the stronger grid coordination can be achieved, Doot and others are watching for the ultimate economic ramifications in terms of consumer power prices.
Ultimately, there are added costs to increased grid reliability that includes more gas-fired generation, Doot said.
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