Wood Mackenzie analyses the importance of natural gas in a relationship which is pivotal for the evolving global energy mix
Could renewables creep up on gas adoption growth in the power sector?
Around the globe, coal plants are retiring to make way for the future of power generation: natural gas and renewables.
In markets where both alternatives to coal are available, the replacement usually depends on the cost. In both the American northeast and in Europe, natural gas is currently the most cost-effective solution. But can it last? In some parts of the U.S., renewables are now competitive on cost.
Wind and solar power struggle to compete in PJM territory
Today, state-level policies and declining costs encourage the adoption of renewables. Interconnection queue requests in all major North American markets show that 90 per cent of new requests ask for solar, wind and storage.
In the largest U.S. wholesale power market, operated by PJM Interconnection, renewable sources like wind and solar have struggled to compete with abundant and cheap natural gas. The network delivers wholesale power to 13 states and the District of Columbia, including in the heart of the gas-rich Marcellus shale play.
Natural gas continues to dominate the generation queue in PJM. As utilities replace the retiring coal assets there, new combined-cycle natural gas generation has nearly replaced coal capacity at a one-for-one rate. In recent years, 29 gigawatts of retiring coal plants in PJM were replaced with 23 gigawatts of natural gas. Now, new requests are starting to give way to renewables projects.
Natural gas production booms in the Marcellus, Permian and Eagle Ford
In a coal replacement cost comparison, natural gas generation beats out renewables in Pennsylvania, West Virginia and eastern Ohio. But in Texas’ ERCOT (Electric Reliability Council of Texas) territory, where Permian- and Eagle Ford-produced natural gas is also plentiful, renewables compete on a cost basis.
Wind and solar are dominating the generation queue in Texas. Plenty of coal plants have retired in ERCOT, including four gigawatts in 2018 alone. Since prices in ERCOT’s energy-only market aren’t strong enough to attract new natural gas developments, wind and solar are picking up the slack.
Even small solar installations with less than one megawatt have flourished. Capacity has nearly doubled between 2016 and 2018.
European thermal generation: cost curve of supply favours gas
In Europe, the first half of 2019 saw a reordering of the cost curve of supply in favour of gas. Drastic fuel and carbon price changes had a major impact on the economics of thermal generators.
The economic shift led to a 13 per cent increase in gas generation across Europe’s five largest power markets – Germany, France, the UK, Italy and Spain.
With support from low gas prices in 2019, Europe’s gas-fired generators are expected to produce more power than coal for the first time. The gap between fuels is large and immediate. Despite competition from renewables, the volume of power supply from gas remains stable through the long-term as market space is created by coal and nuclear closures. This outlook underlines the important contribution of gas to Europe’s energy transition – a role brought into sharper focus by the hastened demise of coal.