Analysis: Natural gas to play pivotal role in energy transition
Despite advancements in battery storage posing a long-term risk to natural gas – as the long-term growth of renewable power erodes market share for the fossil fuel – the conventional power generation method still has a large part to play in energy transition.
The US made great strides toward becoming a hub for battery manufacturing last year after the Inflation Reduction Act introduced a $45/kWh cell and module production tax credit. Battery manufacturers have since raced to identify investment opportunities. For instance, last month South Korea's LG Energy said it would invest about KRW7.2 trillion ($5.5 billion) in a battery-manufacturing complex in Arizona.
Yet, panelists speaking at the Platts Global Power Markets Conference 2023, presented by S&P Global Commodity Insights, said that the market cannot wait for battery technology to be perfected and so gas will continue to be an essential component.
“It’s going to take a long time for battery storage to make up that need for capacity. We are definitely looking at the future as there will be carbon taxes and reasons to figure out solutions, but for now it’s an essential part of our portfolio,” said Sara Parsons, vice president, development, at Avangrid Renewables.
Battery production has jumped dramatically of late and a report from Mercom Capital Group at the start of the year revealed that corporate funding for energy storage grew 55% in 2022.
In order to displace natural gas, battery storage must be capable of discharging for longer than four hours, a technology that has yet to be developed at a competitive cost.
Four-hour energy storage systems cost around $589 per kilowatt-hour of capacity in 2019 and federal body National Renewable Energy Laboratory (NREL) pegged a four-hour, 60 MW/240 MWh lithium-ion battery at $369/kWh two years ago. NREL expects costs of $143/kW to $248/kW in 2030.
“The battery technology is not there yet, and we cannot use batteries as a dispatchable resource in our portfolio, so until then the transition is going to be a blending of dispatchable fuels from natural gas,” said Aram Benyamin, COO, Los Angeles Department of Water and Power (LADWP). “We can’t wait as utilities for technologies to be perfected.”
“12 years ago, we were 50% coal, the next 12 months there will be 0% coal in our portfolio. But the replacement fuel is always going to be dispatchable resources that we have. Reliability is not for negotiation. We do not want to put anything in our system that takes away from the reliability, that is off the table,” Benyamin added.
Carbon capture strategies are also keeping natural gas part of the energy transition for longer. According to Elias Hinckley, partner at energy law firm Baker Botts: “There is a decarbonization strategy for your natural gas plant as the carbon capture technology out there is advancing. There are a number of participants in the market that are actively pursuing and building the first real scaled carbon capture facility attached to a natural gas plant.”
“There’s a lot of money flowing behind this technology. Whether or not it can scale or the pace it can scale are still questions, but there is another path there for natural gas,” he added.
Some point to the lesser-discussed benefit included in the IRA – the Energy Infrastructure Reinvestment (EIR) Program (Title 17 section 1706) to be administered by the DOE Loan Program Office.
The IRA appropriates $5 billion to the DOE LPO to carry out activities under EIR and provides the DOE LPO with the authority to issue commitments to guarantee loans (including refinancing loans) for EIR projects up to an aggregate $250 billion through September 30, 2026.
The statute broadly defines “Energy Infrastructure” to include facilities that generate or transmit electrical energy or used for the production, processing and delivery of fossil fuels derived from petroleum, or petrochemical feedstocks. Projects benefiting from this new program must retool, repower, repurpose, or replace energy infrastructure that has ceased operations, or enable operating energy infrastructure to avoid, reduce, utilize, or sequester air pollutants or anthropogenic emissions of greenhouse gases.
Other methods of weaning off natural gas were also discussed with Benyamin describing how LADWP is using pump storage as a de facto battery with hydrogen production acting as a “sink for the renewables that we are avoiding to curtail”.
With some forecasting as much as 65GW of energy storage projects necessary through 2026 to meet US net zero goals in the next two decades, battery investment will continue to climb. For now, natural gas will continue to be an important component in the nation’s energy transition story.