Natural gas dominates under EPA's "clean power plan"

The first “must know” about EPA’s “Clean Power Plan” (CPP) is that electricity is good and enables the basic services for human existence. We want to encourage, not discourage, the use of electricity. Electricity is a particularly high form of energy and the efficiency in which it is utilized far exceeds the inefficiency of generating it.

Electro-technologies are systems and equipment that use electricity to produce and process consumer goods. From refrigerators to vacuum cleaners to laptop computers, electro-technologies are all around us and becoming more pervasive in our lives, not less. Electro-technologies are more efficient than their fuel-burning counterparts and, unlike standard fuels, have no waste products at the point of use. No smoke, ash, combustion gas, noise, or odor.

Capitalizing on the energy- and CO2-saving potential of electricity is critical to securing a sustainable energy future and a clean and safe environment. Electro-technologies also offer a variety of non-energy advantages: better manufacturing precision and control, improved product quality, higher worker productivity, and reduced environmental impacts.

Thus, the least developed and most air polluted nations on Earth are those that use the least amount of electricity (see here). To illustrate, promoted by environmental groups as the solution to “green” transportation, electric cars could expand home power use by more than 50%, while reducing “well-to-wheel” GHG emissions 30-50%.

Figure 1: The Benefits of Electro-Technologies: More Electricity Means More Efficiency, Less CO2

Sources: EIA; USDA; JTC; Mark Mills

Overall, the CPP aims to cut CO2 emissions by 30% from 2005 levels by 2030, with an interim target of 25% on average between 2020 and 2029. The CPP allows states to craft their own compliance plans, with some reported flexibility measures. Yet, some see EPA forcing states to impose a mix of California-style capping, taxing, and mandating. I’ve already documented here how it’s actually been natural gas that’s winning California’s “rush to renewables.”

For the U.S., natural gas just surpassed coal for the first time as the top source of power generation. About 31% of electric power in April was natural-gas fired, versus 30% for coal. The 2030 target set for each state will be based on the capacity to reduce emissions using EPA’s four “building blocks,” all of them favoring natural gas:

1. Make fossil fuel power plants more efficient.

• Per EIA, “to express the efficiency of a generator or power plant as a percentage, divide the equivalent Btu content of a kWh of electricity (which is 3,412 Btu) by the heat rate…if the heat rate is 10,500 Btu, the efficiency is 33%. If the heat rate is 7,500 Btu, the efficiency is 45%.” A lower heat rate is more efficient, requiring less fuel consumption while also reducing emissions. Natural gas has a heat rate of just 7,948 per kilowatt hour, compared to 10,449 for nuclear and 10,459 for coal (see here).

2. Use low-emitting natural gas combined cycle plants more where excess capacity is available.

• Cleaner natural gas is the power source of choice of those energy sources that are the most affordable and reliable. Per EPA, the average emission rates in the U.S. for natural gas-fired generation per MWh are 1,135 lbs of CO2, 0.1 lbs of SO2, and 1.7 lbs of NOx….compared to 2,249 lbs of CO2, 13 lbs of SO2, and 6 lbs of NOx for coal. Natural gas will be the main low-cost compliance option.

3. Use more zero- and low-emitting power sources such as renewables and nuclear.

• The “nuclear renaissance” faces key shortages in experts, materials, and public support. Promoted as the savior, Small Modular Reactors lose the crucial economies of scale and increase costs. And Mother Nature has installed renewables as NATURALLY INTERMITTENT, burdened with low capacity factors that make them “unavailable” more often than “available.”

4. Reduce electricity demand by using electricity more efficiently.

• I’ve already documented (see here) how the U.S. has become much more electricity efficient, yet electricity use continues to grow – only down recently because of The Great Recession, which left us with stagnant/fallen incomes. More people, making more money…need more energy.

The Clean Power Plan (CPP) Will Make Natural Gas Easily the Most Important Source of Electricity, from the latest (2015) EIA Annual Energy Outlook (AEO) for 2030

Sources: EIA, AEO 2015 and “Analysis of the Impacts of the Clean Power Plan,” May 2015

Consumer societies like ours, where spending constitutes nearly 75% of the economy, need huge amounts of power available all the time, and cheaper energy to increase disposable income. And it’s natural gas that gains market share under normal conditions: “the wind doesn’t blow” and “the sun doesn’t shine.” Even in the current low price environment, U.S. natural gas production continues to boom. EIA’s “High Oil and Gas Resource” scenario is rapidly materializing.

EIA’s reference case already has U.S. natural gas production rising from 75 Bcf/day in 2014 to 91 Bcf/day in 2030 and over 97 Bcf/day in 2040. Experts at Navigant have U.S. gas output soaring to 110 Bcf/day by 2035! I’ve already documented both the massive oil (see here) and natural gas (see here) resources/reserves at our disposal.

And natural gas prices will be adequate for producers because the demand market will be there: fuel switching to gas electricity, a manufacturing revival based on gas, idiosyncratic gas uses such as vehicles and the backup for wind and solar power, and the emerging liquified natural gas (LNG) export business. U.S. gas demand has been outpacing even the best forecasting models (see here).

And the rise of natural gas isn’t due to political favoritism, California for instance is expensively doing all it can to incorporate renewables and natural gas is still easily winning, but because of affordability, availability, and reliability. Additionally, if a carbon tax is ever thrown into the mix (U.S. Senator Sheldon Whitehouse of Rhode Island wants $42/metric ton), natural gas could surge to over 60% of our electricity – double today’s share. Led by Florida, Texas, and Utah, gas is clearly the leader in new power capacity additions.

In fact, the CPP makes it basically impossible to build a new coal power plant without carbon capture and storage, which would increase costs 80%! Some 90 gigawatts of coal capacity, about 30% of the total, could retire by 2020 – more than double the retirements projected in the EIA’s Annual Energy Outlook 2015 base case.

The Breakthrough Institute has shown how it’s natural gas that fills the coal void. And assuming a $15 per ton CO2 tax in 2020, natural gas is EIA’s clear winner at a levelized cost of electricity of $75 per MWh. EIA classifies wind and solar power as still “non-dispatchable” in 2020, compared to “dispatchable” natural gas, more reliable and available as needed.

Indeed, the symbiotic relationship between natural gas and renewables, where gas is the “spinning reserve” backup generation required to compensate for their intermittency, is exactly why those blocking more natural gas infrastructure projects are actually blocking more wind and solar development.

U.S. Power Generation Under the EIA’s “High Oil and Gas Resource” Scenario

Source: EIA, “Analysis of the Impacts of the Clean Power Plan,” May 2015

http://www.forbes.com/sites/judeclemente/2015/07/21/natural-gas-dominates-under-epas-clean-power-plan/3/?ss=energy