What future for gas in a decarbonised world?

25 January 2017

Gas markets are at a crossroad. Not long ago, it was common to see headlines such as “Gas, no longer the fuel of choice” or “The golden age of gas: gone for good?” Did that mean the end of gas as a result of the rapid expansion of renewable energy?

Then, natural gas became known as the “bridge fuel”. Given that natural gas is the least carbon intensive fossil fuel, and that it will take time to scale-up Renewable Energy Sources (RES) sufficiently to meet the Paris Agreement (PA) objectives, some have suggested delivering the energy transition in two stages: first by moving from coal to natural gas, then from natural gas to RES. The latest IEA World Energy Outlook sees gas as the fastest growing fossil fuel and overtaking coal as the dominant fuel in the global energy mix. This is why gas became known as the “transition fuel” or “bridge fuel”.  However, studies[1] have shown that the PA objectives could not be met only by substituting coal with gas. Moreover, it could lock in long lifetime investments in gas, which could become stranded assets as a result of RES growth.

The rapid expansion of RES does not mean the end of gas or relinquishing its “bridge fuel’ title. There is a third possibility, as in practice RES need gas. Gas and RES are complementary rather than substitute. Implementation of the PA requires full decarbonisation of the power systems. To integrate a high level of renewable energy, power systems need flexibility to cope with the stress resulting from sudden and unpredictable variations in availability, which is characteristic of renewable energy. And gas can provide the solution, as gas fired power generation units have short start-up times and rapid ramp-up rates, which means that they can provide more flexibility to a power system than any other power generation technologies (with the exception of pumped storage hydro). So natural gas is the balancing fuel of choice, to offset unexpected lack of availability of RES units.

However, natural gas can play the role of balancing fuel only if the gas system is itself sufficiently flexible. In a system with economic dispatching and a low level of RES, gas-fired power generation assets are usually operated to provide base-load or mid-merit power, or, in the case of simple cycle gas turbines, peaking power and gas consumption follows a predictable profile. In a system with high shares of variable RES where gas units are following the variable net load, the demand for gas at system and unit level becomes more variable and difficult to anticipate. The flexibility of gas-fired generators may be limited by the flexibility of the gas supply. To maintain flexibility, gas infrastructure will need the capability to handle sudden up and down swings in gas demand. Gas contracting practices can also affect supply flexibility.

Moreover, relegating gas to a mere backup fuel implies that much of the existing infrastructure may be underutilised, making it difficult to guarantee the profitability of gas power plants, and therefore attract investors. Capacity Remuneration Mechanisms (CRM) may then be justified. In that perspective, the “Energy Winter Package”, published by the Commission on the 30th November last year, limits eligibility to CRM to plants emitting less than 550gCO2/kWh. Only the most flexible and least CO2 intensive power plants meet that criteria, and they are mostly gas fired. Invariably, most gas-fired plants, with the exception of the oldest OCGTs, meet the criteria.

So there is a role for gas in a decarbonised world, but not an easy one.  To keep its position, gas has to change, adapt and be flexible. It needs to stay on its toes all the time, watching out for the rapidly declining cost of storage, batteries in particular, that may affect its role both as bridge fuel and balancing fuel, but especially the latter as storage can provide the balancing requirements for the whole power system.

By Silvia Pariente-David, Energy Consultant, formerly Senior Energy Specialist, World Bank

[1] Laconde Thibault, Accord de Paris : Quelles implications économiques et technologiques ?, Energie & Développement, April 2016

UK Energy Research Center, The Future Role of Gas in the UK, February 2016