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Western power grid to rely heavily on gas despite increasing renewables

By Patrick Badgley in Houston

February 5, 2013 - With much of the US relying more on natural gas for power generation and large-scale switching from coal to gas becoming a reality last year, California and the Pacific Northwest are looking to a different future — one with less dependence on the fossil fuel, despite its price advantage even in the years ahead.

The Golden State, for instance, has a goal of getting 33% of its electricity from renewable resources by 2020.

But while energy-related buzzwords have been efficiency and renewables, some industry experts said gas demand could get a boost as the intermittent nature of wind and solar generators spur the need for significant quick-ramp firming resources.

Analysis continues below...

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Dean Ellis, senior director of government affairs with merchant generator Dynegy, noted recently that some have estimated as much as 50% of California's load could be served through renewable energy eventually.

"Conventional generation is going to be needed even more in that area to balance the intermittency and variability of the renewable generation," Ellis said.

The state's gas and electric utilities acknowledge the electric system will need gas-fired generation for load following, ramping, and quick starts in the short term until other technologies can mature.

But "overall gas demand for electric generation, under normal hydro conditions, is expected to decline at a modest -0.3% per year for the next 18 years due to more efficient power plants, statewide efforts to minimize greenhouse gas (GHG) emissions through aggressive programs pursuing demand side reductions and the acquisition of preferred resources that produced little or no carbon emissions," according to the 2012 California Gas Report, which is prepared by the state's gas and electric utilities in even-numbered years.

The report forecasts a base case with gas demand falling to just under 6 Bcf/d by 2015 from about 6.25 Bcf/d in 2012.

Total gas demand in California is averaging around 7.5 Bcf/d year-to-date, according to data from Platts unit Bentek Energy.

Bentek's modeling data shows gas demand for power burn in the Southwest averaging about 3.13 Bcf/d in the first month of this year, with a majority of that coming from California.

Under a scenario of sustained dry hydro conditions, gas demand for electric generation is expected to essentially remain flat over the 18-year forecast period, according to the California Gas Report's outlook.

Still, a look at proposed generation projects indicates the state will continue to rely on gas as it works to meet its renewable standards.

California has a total of 18,268.5 MW scheduled to come online between 2013 and 2018, according to Platts data.

Gas projects make up about 7,242.5 MW (39.6%) of that, surpassed only by solar projects at about 7,985 MW (43.7%).

Meanwhile, of the approximately 1,611 MW of generation set to retire in California in the same period, around 1,262 MW are gas (78.4%). No coal plants are set to come online or to be retired.

Part of the hesitation regarding heavy dependence on gas comes from the 2000-2001 “energy crisis” in California.

Gas prices at the Southern California border reached levels nearly 10 times greater than had been experienced in previous history, according to the California Gas Report. Platts prices show SoCal Gas averaged at a record $59.42/MMBtu on December 11, 2000.

Fuzzying the picture for gas demand in California is the status of Southern California Edison's San Onofre Nuclear Generation Station.

Both units at the nuclear station have been offline since early 2012, leading to replacement gas generation that has required an incremental 500,000 Mcf/d, according to Bentek.

Gas prices at southern and northern California city-gates often averaged at some of the highest in North America last year partly due to the outage last summer, Platts prices show.

The 1,100-MW Unit 2 reactor could start running at 70% capacity later this year if Nuclear Regulatory Commission permission is granted.

The NRC is projecting a decision date in late April or early May. The future of San Onofre's 1,100-MW Unit 3 is even less clear, and the outage could go on long beyond that. Those issues come at a plant that has already seen its fair share of criticism prior to these occurrences.

Next page: Nuclear outages, weaker hydro generation account for most California switching

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