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. 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 cleaner fuels to the natural gas mix: Utilities may also work to reduce the carbon content of their fuel streams through introduction of responsible gas supply or renewable natural gas (RNG). Responsible natural gas is gas supply that is certified to have been produced in a manner that limits methane emissions. RNG is produced from organic waste by biochemical processes. Unfortunately, in the near term, costs and immature technology may limit the amount of low-carbon fuel available.
- Develop a hydrogen strategy: Gas companies around the world are beginning to implement projects to produce hydrogen and mix it into natural gas streams in a 20 to 30% blend to significantly reduce the carbon content of the gas delivered to consumers. While currently expensive, this may be “the fuel of the future”, so it makes sense for utilities to begin learning about hydrogen now.
- Prepare for a world of reduced gas sales: If policymakers 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 and 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.
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