Gas Utilities Must Manage the Transition to a Low-carbon World
by Bob Shively, Enerdynamics President and Lead Facilitator
Not too long ago, natural gas was viewed as a relatively clean fuel that would help our society bridge between other more polluting fossil fuels and a future sustainable world based on zero-carbon sources of energy. But recent studies have suggested once the full delivery chain including methane emissions by producers and transporters is considered, maybe gas isn’t as clean as we once thought.
And in regions that have already eliminated coal and fuel oil generation, gas has become the next place to look for reductions in greenhouse gas emissions from the generation and end-use communities. Calls for electrification of loads such as building heating and replacing gas-fired generation with combinations of renewables and storage are growing. Given this, how can gas utilities prepare for a future where policymakers may demand fewer gas-based emissions?
- Eliminate gas leaks: Uncombusted natural gas is a potent source of greenhouse gases. Methane, the key ingredient in natural gas, has an impact 34 times greater than CO2 over a 100-year period. So gas utilities must do everything possible to demonstrate they are reducing fugitive emissions to the lowest levels possible. This includes aggressively eliminating leaks, even those that historically were considered too small to be of concern from a safety or revenue standpoint, and changing maintenance and design practices to eliminate venting of natural gas. Utilities may even need to work with producers and upstream pipelines to demonstrate that they too are eliminating fugitive emissions.
- Add RNG to the fuel mix: Utilities may also work to reduce the carbon content of their fuel streams through introduction of renewable natural gas (RNG) from biofuels or hydrogen. Unfortunately, in the near term, costs and immature technology may limit the amount of low-carbon fuel available. Eventually it may make sense for power plants and large industrial loads to be fueled with green hydrogen, but this market will take some time to develop.
- Prepare for a world of reduced gas sales: If policy makers push for electrification of end-loads as a near-term way to reduce carbon emission, gas utilities must prepare themselves for the possibility of lost load. Without careful planning and coordination with regulators, the results could be devastating with a feedback loop that continually raises rates and encourages more customers to switch to alternate fuels.
A study recently done for the California Energy Commission by Energy+Environment Economics suggested that even with targeted gas retirements, combined electric and gas bills for remaining gas customers could increase 2.5 times by 2050. Regulatory decisions that would require utility shareholders to bear some of these costs risk the financial viability of gas utilities.
The study suggests a transition strategy that includes:
- Avoiding gas system expansion and reducing costs where possible. Although not mentioned in the study, Enerdynamics is aware that some utilities are already designing new facilities for easy downsizing in the future, and some jurisdictions are already limiting new gas hookups.
- Targeted retirements of the gas system where electrification or alternate fuel initiatives can be targeted to specific areas where the gas cost of service is high.
- Accelerated depreciation that allows the utility shareholders to more quickly recover their past investment in the gas system.
- Changes in rate design or cost allocation to move costs to customers that are willing to pay more to maintain gas service.
- Exit fees for departing customers to cover their share of past gas system investments.
- Other funding to cover retirement costs; although not specifically mentioned in the study, other sources suggest these may include secured bonds, proceeds from carbon taxes, or surcharges on electricity bills.
Management for gas utilities already must address several critical issues including maintaining safety and reliability while managing costs; the need to upgrade an aging infrastructure; and, in some regions, to serve growth associated with historically low gas prices. Now they must also initiate plans for a transition to a low-carbon world.
Does your workforce need to learn more about the natural gas industry? We suggest our classroom Gas Industry Basics seminar or our library of natural gas training online.