The U.S. electric sector’s transition to cleaner generation has been led by states for the past four years, but 2021 is poised to offer stronger actions from the federal level. Under President-elect Joe Biden and a Democrat-led Congress, which will likely lead to the proliferation of battery storage and lower-carbon natural gas generation, among other energy developments, experts say.

Groups that are heavily invested in natural gas, such as the Electric Power Supply Association, a merchant generation trade group, consider the resource to be a great investment in 2021. EPSA members are considering natural gas projects with lower emissions profiles in addition to other technologies such as lithium-ion battery storage.

By prioritizing pilots that prove out low emissions natural gas concepts, including  the natural gas sector is poised to secure continued investments and long-term contracts in the U.S., experts say.

Potential policy support for natural gas

Climate regulations have largely been dealt with on a state-by-state basis. The priorities of the Biden administration for a more unified decarbonization approach could result in a new design and operating standard for transitioning the energy system, according to Michael Rutkowski, senior vice president of research and technology development, at the not-for-profit energy research organization Gas Technology Institute (GTI).

For natural gas specifically, the Environmental Protection Agency could tighten restrictions on methane emissions, he said, which would lead to more research on lowering emissions for the fuel source.

Others in the natural gas sector are also hoping for stronger federal policy signals for restricting carbon dioxide emissions, specifically by setting a price on carbon. Without a transparent price on carbon, the utility sector has struggled to make larger investments in technology to reduce greenhouse gas emissions like carbon capture, according to utility experts.

Carbon capture advocates have made great strides in securing an investment tax credit for the capture, sequestration and utilization of carbon dioxide, but the process, which requires energy to run, can be prohibitively expensive for utilities to consider large-scale retrofits on coal or natural gas assets, according to GTI and others in the natural gas sector.

GTI has a wide portfolio of carbon capture technologies being scaled with demonstrations to reduce the cost of carbon capture, Rutkowski said.

As for a carbon price, EPSA sponsored a study published in October by Energy + Environmental Economics to quantify the regional emissions savings that would be gained through such a mechanism in the PJM Interconnection’s wholesale market. EPSA is supportive of a "price on carbon as an economically rational way for us to achieve a market-based mechanism that will allow emissions reductions to occur while allowing [merchant generators] to compete, and minimizing the cost to customers," Todd Snitchler, CEO and president, said.

A Biden administration and Democrat-controlled Congress could advance policies on carbon pricing and create other necessary incentives for decarbonizing the sector, according to EPSA.

Stronger climate regulations could push the energy sector to rethink the existing gas infrastructure, environmental advocates say.

"We have these rapid responding turbines that are on the system, is there a way to decarbonize those generators, but to keep the infrastructure online?" said Michael Colvin, director of the Environmental Defense Fund's (EDF) California Energy Program.

EDF, along with clean energy companies, have shared forecasts of a decarbonized grid where natural gas peakers continue to have a role, specifically in regions impacted by cold snaps and periods of cloudy days during the winter.

Those geographic parameters have prompted research for "a more cost effective option to help cover the times when solar-plus-short-duration-batteries are not the appropriate option," Colvin said. "That is going to be part of the long term conversation of how do we use that gas pipeline network and the existing generators that are out there. Is there a way to decarbonize the pipe or decarbonize the process?"

The natural gas system has "great potential" as existing infrastructure that can be adapted, according to Rutkowski.

In addition, more recent efforts to introduce hydrogen blending in natural gas infrastructure can benefit from the natural gas industry's experience with renewable natural gas or biomethane, and working with regulators, said Kristine Wiley, executive director of GTI’s Hydrogen Technology Center.

"We're trying to advance the technology to find ways to make it cleaner," Wiley said of blue hydrogen, the process of generating electricity by burning hydrogen that was converted from natural gas. Blue hydrogen programs being piloted by GTI with a number of utilities, such as Southern California Edison and Dominion Energy, remain in the early stages.

Burning a blend of natural gas and hydrogen will also require the development of new material and operations standards for low carbon fuels in existing infrastructure, as the standards are written largely for methane, Rutkowski said.

While the potential use of hydrogen in natural gas plants is in the initial stages, other alternative fuels are increasingly being piloted in the U.S. In January, developer Bakken Midstream Natural Gas advanced efforts to utilize ethane — that would otherwise be flared in liquid natural gas projects — as a fuel in North Dakota, building a new power plant expected in 2022.

Cheaper natural gas resources

Natural gas infrastructure investments remain viable considering the low prices. In the merchant generation space, natural gas is considered a strong investment, Snitchler said.

Electric utilities are also making investments in natural gas, including lower-emissions options. Southern Company's Alabama Power received regulatory approval in 2020 for a nearly 2 GW natural gas expansion, although enviornmental advocates are contesting the about $1.1 billion additions. The parent company has continued to invest in natural gas in the last five years, acquiring gas company AGL Resources for approximately $8 billion in 2016 and converting it to Southern Company Gas, according to a utility spokesperson.

Peaker gas capacity is expected to grow every year through 2050, outpacing globally the addition of combined cycle generation turbines in 2029, Bloomberg New Energy Finance (BNEF) concluded in December in its New Energy Outlook 2020. The growth of peaking capacity is impacted by the large amounts of intermittent energy being put on the system.

Changing prices for natural gas will also impact the extent of its use.

According to the Energy Information Administration (EIA), while natural gas prices were low last year, natural gas production also fell. Now, the federal analysis shows rising natural gas prices through 2022, which could prompt more fuel switching between natural gas and coal, and could give the resource "more competition from renewable generation sources from expected renewable capacity additions in 2021."

The low cost of natural gas makes the fuel attractive in the long term, prompting BNEF to model "at what point [would] cheap gas actually become a barrier to decarbonization" on a deeper level, Seb Henbest, BNEF's chief economist and lead author of the New Energy Outlook, said at a webinar in December.

While coal is being replaced with natural gas over the next decade, the subsequent 10 or 20 years show a "counterintuitive" addition of natural gas, based on the existing decarbonization goals in the U.S., but a higher gas price would hasten decarbonization efforts, according to BNEF's modeling. 

2 states leverage batteries and natural gas assets

States with aggressive decarbonization goals and reliability concerns are likely to consider more aggressive pathways for lower emissions natural gas, experts say. New York and California are viewed as key markets to watch regarding reliability trends.

New York issued a battery storage procurement goal for utilities and is working on securing a power supply during winter cold snaps while adding a large amount of offshore wind and other renewables to the energy mix. California is working on its own decarbonization goals and state regulators opened a proceeding to direct how much energy storage utilities and community choice aggregators would be responsible for contracting to ensure reliability.

California had a large gas buildout following its 2000-2001 energy crisis, but the state has shifted, based on its decarbonization goals, to make more investments in energy storage, and replace older plants with short duration batteries, as with the decommissioning of Moss Landing.

"I don’t think you’re ever going to see California approve a new, large natural gas-fired power plant. I think those days are behind us," said Colvin, who has over a decade of experience at the California Public Utilities Commission.

In 2021-2022, he believes more changes will be made to the energy sector to address summer reliability concerns in the state with clean energy resources.

"The old school way of thinking of ensuring reliability was to keep fossil [fuel] around," Colvin said. The solutions to achieve environmental and reliability goals can include lower emissions retrofits or a combination of longer duration energy storage technology.

Facing reliability issues in the winter, New York is also working to ensure the lights stay on as the state adds more intermittent renewable energy capacity. To meet the state's climate goals, utilities are required to transition from natural gas to low emissions technologies without risking system reliability.

Consolidated Edison and the New York Power Authority (NYPA) are two of the 18 companies across the country partnering with GTI and the Electric Power Research Institute on its Low Carbon Resources Initiative (LCRI) working on increasing a hydrogen blend in natural gas.

Additionally, NYPA is planning to install and demonstrate short duration storage in tandem with gas peaker plants at six sites, as a way to address capacity shortages in the New York City area, according to utility president and CEO Gil Quiniones.

"When long-duration storage becomes available, we also want to be the first one ... and pilot that," he said. "Who knows? A long-duration storage [system] may completely replace a peaker plant because our peaker plants run on the average of 10% of the year in terms of run-hours."