Low Carbon Economy

worldwatch report 184

saya kitasei

Powering the Low-Carbon Economy:

The Once and Future Roles of Renewable Energy

and Natural Gas

worldwatch inst itute

worldwatch report 184

Powering the Low-Carbon Economy:

The Once and Future Roles of Renewable Energy

and Natural Gas

saya kitasei

lisa mast ny, editor

Worldwatch Institute, 2010Washington, D.C.

ISBN 978-1-878071-97-2

Printed on paper that is 50 percent recycled, 30 percent post-consumer waste, process chlorine free.

The views expressed are those of the author and do not necessarily represent those of the Worldwatch Institute; of its directors, officers, or staff;

or of its funding organizations.

On the cover: The SEGS IV power plant in the middle of the solar array, California.Photograph, Sandia National Laboratory

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The report is also available at www.worldwatch.org.

Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5

Less Carbon, More Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7

The Rise of Renewable Energy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9

The Renaissance of Natural Gas . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16

Natural Allies in the 21st-Century Grid . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23

A Bridge to Somewhere . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30

Catalyzing the Low-Carbon Transition . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33

Endnotes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36

Index . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

Figures, Tables, and Sidebars

Figure 1. Average Annual Growth in Global Electricity Generation, by Fuel, 200408 . . . . . 9

Figure 2. Share of Wind and Solar in Total Electricity Generation, Selected Countries and Regions, 19902008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12

Figure 3. Share of Global Installed Capacity of Selected Energy Storage Technologies . . . 14

Figure 4. Estimated Levelized Cost of Backup Electricity . . . . . . . . . . . . . . . . . . . . . . . . . . . 15

Figure 5. Share of Global Primary Energy Use, by Energy Source, 19652009 . . . . . . . . . . 17

Figure 6. Natural Gas Share of Primary Energy Use, by Region, 2009 . . . . . . . . . . . . . . . . 17

Figure 7. Levelized Cost of Electricity of Selected Plant Technologies . . . . . . . . . . . . . . . . . 18

Figure 8. U.S. Natural Gas Prices, 19762010 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19

Figure 9. Global Liquefied Natural Gas Exports, Total and as Share of Natural Gas Consumption, 200109 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figure 10. Lifecycle Greenhouse Gas Emissions from Coal and Natural Gas Power Plants . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21

Figure 11. Sample ERCOT (Texas) Load Curve, July 814, 2009 . . . . . . . . . . . . . . . . . . . . . 23

Figure 12. Levelized Cost of Electricity and Carbon Dioxide Emissions for Selected Baseload Power Options . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27

Figure 13. U.S. Methane Emissions by Source, 2008 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31

Table 1. Observed Costs Associated with Distributed Generation in the United States . . . 28

Table 2. Performance Characteristics of CHP Technologies . . . . . . . . . . . . . . . . . . . . . . . . . 28

Sidebar 1. Addressing the Environmental Risks of Unconventional Gas Production . . . . . 20

Sidebar 2. Wind Integration Hits Turbulence in Colorado . . . . . . . . . . . . . . . . . . . . . . . . . . 25

Table of Contents

This report was much improved by the valuable input and insights of numerous experts in the energy field, including Joel Bluestein, Jacques de Jong, Arjan Dikmans, Michael Eckhart, Jenny Fordham, Gary Groninger, Rich Haut, Jerry Hinkle, Fred Julander, Dan Kammen, Vello Kuuskraa, Dan LeFevers, Nick Lenssen, Jack Lewnard, Brannin McBee, Yvonne McIntyre, Mike Ming, Frans Nieuwenhout, Thorsten Schneiders, Martin Schpe, Greg Staple, Frauke Thies, Jim Torpey, Paul Van Den Oosterkamp, Rich Ward, and Bill Williams.

Very special thanks go to my colleagues at the Worldwatch Institute. Senior Energy Advisor Heidi VanGenderen provided tireless feedback and moral support throughout my work on the Natural Gas and Sustainable Energy Initiative. Senior Fellow Janet Sawins thorough review and thoughtful suggestions strengthened the report immensely. I also thank Climate and Energy Pro-gram members Alexander Ochs, Haibing Ma, and Sam Shrank for their careful reviews; Annette Knoedler for her cheerful and skillful execution of expert interviews; and Andrew Eilbert, Camille Serre, Pierce Boisclair, and Meera Bhaskar for their research support.

Worldwatchs Director of Communications Russell Simon and Director of Publications and Marketing Patricia Shyne provided outreach support, independent designer Lyle Rosbotham was responsible for the reports layout, and Corey Perkins saved my work from mysterious technologi-cal problems on numerous occasions. I am deeply indebted to Senior Editor Lisa Mastny, whose energy and patience have carried this report from start to finish. I am incredibly grateful for the guidance and support of Worldwatch President Christopher Flavin. I could not have written this report without his mentorship and trust. Any remaining errors are my own.

Finally, I want to thank MAP Royalty, especially Jane Woodward and Peggy Propp, whose sup-port for my fellowship made this work possible.

Saya Kitasei is the lead researcher and program manager of the Worldwatch Institutes Natural Gas and Sustainable Energy Initiative (NGSEI). She is co-author of the NGSEI reports The Role of Natural Gas in a Low-Carbon Economy (with Christopher Flavin), Addressing the Environmental Risks of Shale Gas Development (with Mark Zoback and Brad Copithorne), and How Energy Choices Affect Fresh Water Supplies: A Comparison of U.S. Coal and Natural Gas (with Emily Grubert).

Saya graduated from Stanford University in 2009 with an M.A. in Russian, East European, and Eurasian Studies and a B.S. in Earth Systems. While at Stanford, she received an Undergraduate Research Fellowship to construct a stable isotope record of the Early Oligocene with Robert Dun-bars Stable Isotope Lab, an Ernest Hollings Fellowship to research sea-surface change and razor clams with the U.S. National Oceanic and Atmospheric Administration in Alaska, and a Depart-ment of Education FLAS scholarship to study advanced Russian at Moscow State University. After graduating, she interned with the Center for American Progress Energy Opportunity team and the Climate Institute in Washington, D.C. Saya began her MAP fellowship with Worldwatch in time to help launch the NGSEI at an event at the United Nations Climate Conference in Copenhagen in December 2009.

Acknowledgments

About the Author

4 Powering the Low-Carbon Economy www.worldwatch.org

5www.worldwatch.org Powering the Low-Carbon Economy

O ver the past decade, renewable energy and natural gas have emerged as potential cornerstones of a low-carbon power sector. Wind and solar resources are abundant and can be converted into electricity using technologies that emit no greenhouse gases. Natural gas offers a cleaner alternative to coal that can deliver sharp, immediate reductions in carbon dioxide emis-sions from the power sectorif new supplies can be produced responsibly.

Important synergies between renewable energy and natural gas will allow for reduced dependence on coal, speeding the transition to a low-carbon economy. These synergies emerge when the power system is considered holistically, rather than with the one-solution-for-one-prob-lem approach that electricity system operators have employed historically.

Natural gas can be used in a range of efficient, flexible, and scalable generating technologies, making it a natural partner for variable renew-able energy sources such as wind and solar power. Because these renewable resources vary by the season, day, and even hour, wind and solar power plants cannot always generate electricity when it is needed, as other types of power plants can. Meanwhile, the coal and nuclear steam turbines that form the backbone of most electricity sys-tems today are very slow to turn up and down and become much less efficient when they are running at less than full power. The inflexibility of these plants limits the amount of variable gen-eration that the electricity grid can absorb.

Thanks to growing policy support for renew-able energy, the costs of many renewables are falling, and renewable energy has started to penetrate power markets in a significant way. In

2008, the share of the worlds electricity gener-ated from wind and solar power surpassed 1 percent, more than double the contribution in 2004. In some countries and regions, the share is considerably higher: several states in northern Germany now generate more than 30 percent of their electricity from wind energy alone, and two U.S. states generate more than 8 percent. In Den-mark, wind power represents about 20 percent of total generation.

Yet the world could be generating much more renewable power than it is. The global installed capacity of wind and solar power is now grow-ing by 3050 percent per year. But electricity systems with growing shares of variable genera-tion are sometimes unable to accommodate all of the power that is available, especially at times when demand is low. Although some regions are able to store limited amounts of excess electricity for later use or to share the power with neighbor-ing regions, many system operators are forced to curtail or turn down wind and solar generators in such situations. Natural gas power plants can increase the grids flexibility as a whole and pro-vide dedicated backup generation to individual wind and solar plants.

Renewable energy and natural gas can also power a transition away from inefficient central-ized power. Natural gas power plants come in a range of scales, allowing them to generate elec-tricity in both centralized and distributed power systems. Distributed power, produced from small generators located near electricity consumers, can reduce the expense and efficiency losses associ-ated with long-distance transmission. Small solar, wind, and natural gas-fired cogeneration plants (also known as combined heat and power, or CHP, plants) can be integrated directly into dis-

Summary


Four key mechanisms can enable the combi-nation of renewable energy and natural gas to displace coal and provide needed reductions in power-sector emissions. First, air pollutants such as nitrogen oxide, sulfur dioxide, and mercury must be tightly regulated. Second, a cost must be attached to emitting carbon dioxide. Third, electricity system operators should allow wind and solar plants to balance their own output with on-site resources. And finally, the markets on which system operators purchase electricity must be highly responsive, allowing them to react to fluctuations in electricity supply and demand as rapidly as possible.

Working together, renewable energy and natu-ral gas can accelerate the decarbonization of the worlds electricity system and form the founda-tion of tomorrows low-carbon economy.

tribution lines and networked together to create a diffuse, flexible, local, and low-carbon grid.

In order to play a sustainable role in a low-car-bon future, natural gas itself can and must decar-bonize. At the chemical level, natural gas consists primarily of methane, a molecule that can be produced or synthesized from a variety of renew-able sources. Landfills and organic processes can create methane that otherwise enters the atmo-sphere, where it acts as a greenhouse gas some 25 times more potent than carbon dioxide. This methane or biogas can be used interchange-ably with natural gas, and capturing and utiliz-ing it can mitigate greenhouse gas emissions. In the future, methane supplies could be decarbon-ized further by blending in hydrogen gas, a zero-carbon fuel that can be produced from water through electrolysis using renewable energy.

Summary


In June 2010, carbon dioxide (CO2), the greenhouse gas contributing the most to human-induced climate change, reached concentrations of 392 parts per million in the Earths atmosphere, a 5.5 percent increase over 2000 and a 10.1 percent increase over 1990.1* A host of indicators, including increasing surface temperatures over land and sea, reced-ing glaciers and sea ice, rising sea levels, wors-ening ocean acidification, and changing hydro-logic cycles, demonstrates that the past centurys growth in CO2 concentrations is affecting and altering the global climate.2

By some measures, prospects for addressing climate change seem dimmer in 2010 than they have at any time in the last decade, with the foun-dering of international climate negotiations in Copenhagen, Denmark, in December 2009, and the U.S. Senates failure to launch climate legisla-tion that would have capped CO2 emissions from the worlds largest economy. Meanwhile, despite a global recession, the economies of China and India continue to grow, consuming increasing amounts of fossil fuels and emitting ever more greenhouse gases.

Yet despite the failure of top-down approaches to curb greenhouse gas emissions at the interna-tional level and in some major emitting coun-tries, concerns about local pollution and energy security, as well as a growing carbon conscience in society, are continuing to drive progress toward a low-carbon economy. Over the past two years, renewable energy and natural gas (the cleanest fossil fuel in terms of CO2, sulfur diox-ide, nitrogen oxides, particulate matter, and mer-cury) have weathered the recession well, while

dirtier fuels have watched their market shares erode, particularly in the power sector.

The single most important opportunity for reducing global CO2 emissions lies in revolution-izing how the world generates electricity. Public electricity and heat production was responsible for 25 percent of global CO2 emissions in 2005, up from 23 percent in 2000 and only 12 percent in 1970.3 Emissions from electricity production have grown faster over the past four decades than those from any other source, including transpor-tation. Much of the growth in power- and heat-sector emissions over the past decade has resulted from the explosion of major emerging economies such as China and India. If these countries are to develop sustainably, the groundwork for low-car-bon power systems must be laid now.

Fortunately, the major sources of emissions in the power sector tend to be few, large, and centralized, making immediate reductions easier and cheaper to regulate and enforce than in many other sectors of the energy economy.4 Moreover, many of the technologies and resources required to develop a low-carbon power sector are already commercially available, although underutilized. Wind and solar power are growing especially rap-idly: in 2005, these and other renewable power technologies (excluding large hydropower) gener-ated 5 percent of the worlds electricity, and their global potential is much higher.5 The German Aerospace Center (DLR) estimates that by 2030, 13 of the worlds 20 largest economies could gen-erate 40 percent or more of their electricity from

Less Carbon, More Power

* Endnotes are grouped by section and begin on page 36.

This statistic includes public heat generation such as might be produced by a cogeneration district heating system; however, heat represents only a small share of the total. This report focuses on the dominant contributor, electricity.

8 Populat ion, Cl imate Change, and Womens L ives www.worldwatch.org

Less Carbon, More Power

its extraction can be addressed. And in some countries, renewable biogas is diversifying and de-carbonizing the gas supply.

Market forces and the growing imperative to reduce energy-sector emissions will eventu-ally drive an energy transition. But as energy expert Peter Fox-Penner writes, The choice is not whether we make these changes, but whether we make them well or poorly, costly or cost-effectively, quickly or at a tortured, halting pace. Mother Natures timetable forsafe decarbon-ization is not negotiable.7

In recent years, the growth of renewable energy and natural gas has created stiff compe-tition for the large share of electricity currently produced from coal. But competition between renewable energy and natural gas is counterpro-ductive. Although the notion that natural gas could be central to a low-carbon transition is controversial, natural gas and renewable energy offer complementary strengths to a low-carbon economy. Strategic deployment of both can reduce the cost and accelerate the timing of an energy transition that is behind schedule when measured by the uncompromising clock of cli-mate change.

renewable energya share that could exceed 50 percent in all 20 countries by 2050.6

But realizing such high penetrations of renew-able power around the world will require pro-found changes to the electricity sector. Three key elements of this transition are: shifting away from inflexible baseload coal power plants; diversify-ing the sources of electricity supply; and decen-tralizing power generation. Together with the efficiency gains that can come with new trans-mission and distribution infrastructure, more modern power plant technology, and smart end-user appliances, these three elements can be the cornerstones of an accelerated transition to a low-carbon economy. Done right, this transi-tion can lower emissions from sectors that are expected to become increasingly electrified, such as buildings and transportation.

Natural gas is a critical partner in meeting these goals. Market and technological developments in recent years have the potential to make natural gas an abundant, accessible, and affordable alternative to coal in the coming decades. Because natural gas can be used in a range of efficient, flexible, and scalable applications, it is a natural partner for renewable energy in a low-carbon futureas long as the environmental risks associated with


A

The Rise of Renewable Energy

worlds electricity grids in 2009 alone was more than double the capacity installed in the entire 20th century.4 In the past two years, wind power has accounted for a greater share of new elec-tric generating capacity in Europe than any other generating technology.5 Wind energy generated 340 billion kilowatt-hours (kWh), or 2 percent of the worlds electricity, in 2009, and in many regions it is now cost-competitive with coal-fired electricity.6

Offshore wind power has even larger poten-tial in many parts of the world and is poised for rapid growth over the next decade. By late June 2010, Europe had installed a total of 2.4 GW of offshore wind capacity and had an additional 4.0 GW under constructionincluding the United Kingdoms 300 megawatt (MW) Thanet plant, the worlds largest offshore wind farm, which began operation in September 2010.7 In July, the

t the turn of this century, renewable energy* began taking shape as a viable solution to the environmental and energy security concerns that plague

fossil fuels. Solar photovoltaic (PV) cells, origi-nally developed to power satellites and space sta-tions, were starting to enter the grid-connected power market and could be found on some roof-tops. A handful of solar thermal power plants were generating electricity in Italy and south-ern California. Wind energy, long a presence in Denmark, Germany, and Spain, was better established, but the technology had scarcely pen-etrated global markets.1

Today, just 10 years later, wind turbines have become a familiar and iconic fixture in many regions, from the panhandle of Texas to the waters off Shanghai. In marked contrast to fossil fuels, renewable energy (excluding hydropower) has achieved average annual growth rates of more than 20 percent for the last five years, with solar power averaging more than 40 percent.2 (See Figure 1.) The remarkable surge of renewables, which broke records even as the global financial crisis drove the first drop in global primary energy consumption this millennium (in 2009), has been one of the decades greatest success stories.

The global installed capacity of wind tur-bines has grown from 17 gigawatts (GW) in 2000 to 159 GW in 2009, an increase of more than 800 percent.3 The wind capacity added to the

* Renewable energy can refer to a range of resources, including hydrokinetic energy, solar energy, wind energy, geothermal energy, waste, biomass, biofuels, and biogas. This report focuses on solar and wind energy, the two most rapidly growing sources of renewables in the power sector. Units of measure throughout this report are metric unless common usage dictates otherwise.

Perc

ent

Source: IEA

-10

0

10

20

30

40

50

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Nucle

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Coal

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Figure 1. Average Annual Growth in Global Electricity Generation, by Fuel, 200408



has been tapped to build in the deserts of Chinas Inner Mongolia.14

After a decades-long hiatus, interest in con-centrating solar thermal power (CSP), a technol-ogy that concentrates sunlight with fields of mir-rors to heat a fluid and spin a turbine, has revived in recent years. Global capacity grew to 613 MW by the end of 2009.15 In 2010, California permit-ted its first solar thermal projects in two decades, a total of 2.7 GW, and between March 2009 and March 2010 Spain added 220 MW of new CSP.16 Meanwhile, a 2.0 GW solar thermal project built by ESolar is expected to join the PV project of similar scope planned for Inner Mongolia.17 CSP has a significant advantage over solar PV, which generates electricity only when the sun is shin-ing, because it can store heat in a medium such as molten salt or mineral oil to extend generation hours after the sun has set.18

Additional electricity is being produced from other renewable sources. Geothermal energy pow-ered 11 GW of capacity and generated more than 67 billion kWh of power in 2009. Solid biomass contributes a further 54 GW of power capacity and is now being combusted or co-fired along with coal and natural gas in conventional power plants. The use of biogasa biologically derived gas composed mainly of methanein power gen-eration has also risen. Hydropower, the worlds largest source of renewable energy, still comprises the vast majority of global renewable energy gen-eration: global capacity reached 980 GW in 2009, or roughly one-fifth of the worlds total installed generating capacity.19

Like the power sector, transportation has increased its reliance on renewable energy in the past decade. Fuels produced from organic material such as corn and sugar cane have become common alone or blended with gasoline and diesel in the United States, Europe, South America, and Asia. In Brazil, sugarcane etha-nol has displaced half of the countrys gasoline consumption.20 In 2009, global production of ethanol reached 76 billion liters, and biodiesel production reached 17 billion liters.21 How-ever, significant uncertainty surrounds biofuels, with many analysts concluding that the land-use change associated with shifting to biofuel crops would increase greenhouse gas emissions enough

102 MW Donghai Bridge Wind Farm, Chinas first offshore wind power plant, began transmit-ting electricity to the national grid.8

Globally, the technically recoverable wind energy resource is an estimated 570 quadrillion Btu, significantly greater than the just over 450 quadrillion Btu of total global primary energy consumption in 2008.9 Yet wind resources pale in comparison to energy available from the sun, estimated at more than 1,500 quadrillion Btu.10 Although solar PV cells remain costly compared to wind turbines, they are quickly becoming less expensive and are now the worlds fastest grow-ing power technology. By the end of 2009, more than 21 GW of grid-connected PV cells were installed worldwidea 100-fold increase in capacity since 2000.11

Although most solar PV cells are applied in relatively small, decentralized installationsoften on the roofs of buildings or on brownfield sites in urban areaslarge, utility-scale power plants are starting to be built as well. U.S. energy services company SunEdison announced plans in March 2010 to build Europes largest PV plant in Rovigo, Italya 72 MW installation.12 And PV manufacturer SunPower has received a contract to develop a 250 MW PV power plant in San Luis Obispo, California.13 Both of these plants could be dwarfed, however, by a 10-year, 2,000 MW PV project that another U.S. company, First Solar,

The Lillgrund Wind Farm, Swedens largest offshore installation.

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Although a few governments had created policies designed to promote the development of renew-able resources, the concept was novel enough in the year 2000 that U.S. President Bill Clinton in his State of the Union address called vaguely for a major tax incentive to business for the produc-tion of clean energy.27

Just 10 years later, a robust policy toolbox is available to governments that want to promote renewable energy. Such policies have mush-roomed in the past few years. Feed-in tariffs requiring utilities to purchase renewable energy generated by any producer at cost-based prices now exist in at least 50 countries and 25 states or provinces.28 And 10 countries and 46 states and provinces worldwide have renewable electric-ity standards or quotas, which set targets for the share of their electricity generation or capacity coming from renewable sources.29

Growing numbers of states and countries also provide tax credits, loans, and grants to renew-able energy developers, as well as subsidies in the residential, industrial, and commercial sec-tors.30 Many governments seized the opportunity presented by the recent economic downturn to build substantial renewable energy spending into stimulus packages. The United Nations Environ-ment Programme was among many voices calling for a global Green New Deala strategy for both combating climate change and creating new industries and jobs in the 21st century.31 Total green stimulus allocations for renewable energy and energy efficiency as of mid 2010 amounted to some $188 billion, more than 90 percent of which had yet to be spent.32*

The costs of wind and solar power remain a key barrier to more rapid penetration of these energy sources; however, supportive policies as well as public and private research and devel-opment have helped drive down prices. Private investment in new renewable power capacity has grown over the past decade as well, exceeding investment in new conventional power capacity since 2008.33

Although renewable energy is emerging as a competitive alternative to fossil fuels in Europe

to negate the carbon savings that these fuels offer over their petroleum-based counterparts at the point of use.22

Liquid fuelswhether petroleum, liquefied natural gas (LNG), or biofuelsare no longer the only choice for use in most vehicles. Com-pressed gases such as natural gas and methane produced from landfills and biomass are proving to be a practical, cleaner, and less expensive alter-native to petroleum fuels in some parts of the world. Pakistan, for example, had some 2.3 mil-lion natural gas vehicles on the road in 2009.23 Several companies are developing vehicles pow-ered by hydrogen fuel-cells and even solar-pow-ered hydrogen home-fueling stations, although dedicated hydrogen vehicles remain some years from being commercial.24

Renewable energy can also be used to fuel transportation via electricity generation. As hybrid-electric and plug-in hybrid vehicles become cheaper, lighter, and more efficient, a growing share of the transportation sector is likely to be electrified. The addition of this new load to the electric grid will tie transportation-related emissions to the generation mix, increasing the urgency of decarbonizing the power sector.

Electrification may increase in the space heating and cooling sectors as well.25 Renew-able alternatives, such as biomass boilers, solar water heaters, and geothermal heat pumps, are being used to provide buildings with heat and hot water in many parts of the world. But the markets for heating and cooling have lagged behind those for electricity and transportation in adopting renewable energy. Renewables, espe-cially solar energy, have the potential to increase off-grid access to heating, cooling, and hot water, especially in regions that lack the pipeline infrastructure that distributes natural gas (the developed worlds cleaner alternative to oil and coal in heating buildings). China already has 105 gigawatts-thermal (GWth) of solar water heating capacity installed70 percent of global capac-ityproviding hot water to more than 70 mil-lion households.26

The rapid growth of wind and solar energy over the past decade could not have occurred without support from strong policies at the local, state, national, and international levels.

* All dollar amounts are expressed in U.S. dollars unless indicated otherwise.



30 percent of their electricity from wind.38

While these have been heady years for renew-ables, their rapid penetration into energy mar-kets has revealed key challenges that must be addressed. Certain types of renewable energy resources, such as biomass, geothermal, and hydropower, are available constantly and can be integrated into the grid as baseload power plants. But the use of these energy sources may be con-strained by land use and other environmen-tal concerns or by a scarcity of sites with large resources.

By contrast, the sun and the wind offer the most ubiquitous forms of renewable, zero-emis-sions energy, and they both will be needed in significant quantities in any low-carbon future. But the best solar and wind energy resources are distributed unevenly in space and time, which can present difficulties to utilities that must deliver power when and where it is needed. Many of the best solar and wind resources are found in remote locations, requiring the construction of new transmission lines that are expensive and that can be very challenging to site.

The sun and wind are also variable energy resources, meaning that they do not provide energy steadily throughout the season, day, or even hour. Utility operators currently have lim-ited ability to ramp them up or down in response to fluctuating demand. Solar energy is available only during daylight hours, generally peaking around noon. Demand for electricity also tends to peak at mid-day, so solar farms can provide peaking power that is backed up, or firmed, by the quick-response power plants that utilities usually use to provide peaking power.

Wind, on the other hand, tends to be greatest during the night, when demand for electricity is generally lowest.39 To balance a sudden increase in wind or another energy resource, system opera-tors must reduce output from other power plants. Some regions have must-take provisions that require utilities to purchase any renewable power that is generated, regardless of whether such pur-chases minimize costs. China, Germany, Spain, and the Canadian province of Ontario all have feed-in tariffs that include must-take clauses.40

Yet sometimes a surge in wind may over-whelm a systems ability to accept the power,

and North America, the true transformative potential of renewables lies in the develop-ing world, where the creation of a clean energy economy can avoid a fossil fuel-dependent devel-opment pathway and the security and envi-ronmental problems that this entails. Develop-ing countries are now home to more than half of global renewable electricity capacity. China, India, and Brazil rank among the strongest wind, solar, and bioenergy markets and also boast robust domestic renewables industries. Four of the top 10 wind turbine manufacturers, respon-sible for nearly 30 percent of global production in 2009, are Chinese or Indian.34 In 2007, China was estimated to be the worlds largest manufac-turer of PV cells, after having barely been a player in 2003.35

Globally, the share of wind and solar energy in total power generation remains small, but in some countries and states aggressive renewable energy policies have led to penetration levels exceeding 10 percent. Denmark generated 19 per-cent of its electricity from wind energy alone in 2008, and Spain and Germany produced 11 and 7 percent, respectively, of their electricity from wind and solar combined that year.36 (See Figure 2.) The U.S. states of Iowa and Minnesota gener-ated 8 percent of their electricity from wind in 2008, although wind and solar comprised only 1 percent of total U.S. electricity production.37

Some German states already produce more than

Perc

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Source: EIA

1990 1993 1996 1999 2002 2005 2008

Denmark 19%

Spain 11%

Iowa 8%

Germany 7%

India 1.9%U.S. 1.3%

China 0.4%

0

5

10

15

20

Figure 2. Share of Wind and Solar in Total Electricity Generation, Selected Countries and Regions, 19902008



Renewable Energy Laboratory on the feasibil-ity of integrating 30 percent wind and 5 percent solar power into the western United States found that, Large amounts of wind in a small area may lead to challenging operational issues, but larger balancing areas can better accommodate the vari-ability from high wind and solar penetration.43

In many cases, expanding load-balancing areas

requires the construction of new long-distance transmission lines that can be used to import and export electricity when there are sudden drops or spikes in wind and solar generation. The abil-ity to trade electricity across national borders, for example, is a critical assumption in a recent study by Germanys federal environmental agency that analyzed the feasibility of completely decarboniz-ing that countrys power system by 2050.44

As wind and solar power play an even larger role in electric grids, energy storage will be needed to retain excess power for times of high demand. For nearly a century, hydroelectric pumped-storage has helped utilities balance vari-able loads, with current global capacity stand-ing at more than 123 GW, or 98.3 percent of all installed energy storage capacity.45 (See Figure 3.) In the United States, some 3 percent of all kilo-watt-hours delivered spend some time in storage, and the shares in Europe and Japan are closer to 10 and 15 percent, respectively.46

creating a situation of over-generation. In such cases, operators currently have two main options: (1) to export excess wind generation, and (2) to shut off or curtail wind generators. A third option, storing excess generation for later use, is possible today only in certain regions and at a limited scale, although the development of new energy storage technologies could enable large-scale storage in the coming decades.

Denmark, for example, is unique in being able to export its excess electricity to Norway and Sweden, where it is then stored in large pumped hydro plants and sold back to Denmark when prices are high.41 Denmark benefits from having access to a nearby market that is large enough to absorb (and store) its surplus power. The con-struction of additional transmission and inter-connections among power systems may enable more regions to follow Denmarks example, but for now most operators must force wind genera-tors to reduce or curtail their output when it is not needed.

The U.S. state of Texas is a case in point. Whereas most of the continental United States is linked to one of two huge, interconnected grids, most of Texas is on an isolated grid that prevents it from importing or exporting electricity. As of mid-2009, this grid had about 8 GW of wind capacity but could accommodate only some 4.5 GW due to transmission constraints. Between December 2008 and July 2009, Texas curtailed between 500 MW and 1 GWand occasionally up to 3 GWof wind power daily, in many cases more than 30 percent of its daily aggregate wind output.42 The states wind turbines, in short, were unable to realize their full potential.

One basic technological improvement that will aid the integration of variable renewable energy is better wind and solar forecasting. The more accurately that utilities are able to antici-pate large changes in net load (the difference between electricity demand and solar and wind generation), the better they can plan on balanc-ing it using the rest of their generating fleet.

Another way to reduce the variability that comes with the expansion of wind and solar power is by increasing the geographic area and diversity of renewable resources within an elec-tricity system. A recent study by the U.S. National

The Desert Sky Wind Farm in West Texas.

Edw

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Jack

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energy storage (CAES), another storage technol-ogy, exist in Germany and the U.S. state of Ala-bama. Using a compressor during off-peak hours, CAES systems pump air into underground for-mations, where it is stored at high pressure until it is heated using natural gas and used to drive a high-temperature combustion turbine during peak hours. Although underground CAES appli-cations are constrained by geology as well, they can have capacities in the hundreds or thousands of megawatts. Smaller above-ground systems using steel tanks or other vessels could be used for smaller-scale, distributed compressed air stor-age but are not yet commercially available.50

Off-peak electricity can also be used to create hydrogen gas from water using an electrolyzer. This hydrogen could be used to power a com-bustion turbine or a proton exchange membrane (PEM) fuel cell. These technologies are cur-rently cost competitive with batteries for electric-ity storage, but are double or more the price of pumped hydro storage, CAES, or backup genera-tion from natural gas combustion turbines.51 (See Figure 4.)

Additional technologies, such as flywheels, superconducting magnetic energy storage (SMES), and ultracapacitors, are being tested to provide energy storage over much shorter time-frames than pumped hydro or compressed aira characteristic that is useful for supplying rapid-response load regulation, power quality, and grid stabilization.52 Plug-in electric vehicles could

During off-peak hours, pumped storage plants use cheap electricity to pump water to higher elevations, and then use that water to drive tur-bines at peak hours when electricity is expen-sive. Although pumped storage involves a net loss in electricity generated, the price differential between the kilowatt-hours it uses and those it sells can be sufficient to make it profitable.47 The arbitrage opportunities created by this peak/off-peak price differential, along with the demand for storage from wind and solar power plants, are attracting new innovation and investment in other areas of the energy storage field as well.

Wind plants from Hawaii to Ireland are begin-ning to test battery systems that can store their excess power for lean times. Xcel Energy, the larg-est wind purchaser in the United States, recently tested the use of a 1 MW sodium sulfate battery coupled with an 11.5 MW wind plant in Min-nesota and found the battery to be effective in balancing or firming modest amounts of wind, although additional testing was recommended and the technology remains some years from being commercial.48 Still, some analysts believe that recently developed batteries, which have reported efficiencies of more than 90 percent, could provide affordable storage that is competi-tive with pumped storage, which can deliver only about 7085 percent of the electricity it con-sumes and is constrained by geology and envi-ronmental concerns.49

Two examples of utility-scale compressed air

Source: Lin

Other 1.7%

Molten Salt 0.1%

Other 0.1%

PumpedHydro98.3%

Batteries0.4%

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0.4%

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Figure 3. Share of Global Installed Capacity of Selected Energy Storage Technologies



duce. But as solar and especially wind power are deployed in ever-greater quantities, utili-ties must find additional flexibility in the grid to accommodate this development and deploy-ment period, which could take years to decades. Fortunately, a range of efficient natural gas power plants is poised to play this role today, balancing renewable resources while displacing dirtier elec-tricity generated by an aging coal fleet.

serve as an enormous, diffuse system of batteries for electricity storage as well, charging from the grid during off-peak hours at night and with-drawing or returning power to the grid whenever the vehicles are plugged in.

In addition to innovations that improve grid reliability on the supply side, new technologies are enabling operators to manage the demand side as well. Historically, electricity has been sup-plied when and where it is needed in response to demand that is oblivious to price. But new smart grid technologies and infrastructure being tested in locations from the island nation of Malta to Boulder, Colorado, will make it easier for consumers to change their electricity usage in response to prices or other signals.53 Advanced metering and a range of smart appliances can display and react to real-time price informa-tion from utilities. Smart grid systems also allow operators to better visualize the grid, moni-tor distributed generation and storage, control transmission and distribution lines, and balance increasingly variable loads.

Better forecasting, expanded transmission, improved energy storage, demand response, and other elements of a smarter, leaner grid will play a large role in mitigating the variability and uncertainty that wind and solar energy intro-

Compressed airenergy storage

Pumped hydro

Natural gascombustion turbine

Hydrogencombustion turbine

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$0.14

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$0.50

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Figure 4. Estimated Levelized Cost of Backup Electricity


R

The Renaissanceof Natural Gas

be transported cheaply in rail cars or tankers with little additional infrastructure, natural gas has rel-atively high transport costs. For most of the 20th century, it was transported exclusively through pipelines in a compressed gaseous form (CNG), necessitating significant investment in pipe-line infrastructure. More recently, technological advances have permitted suppliers to liquefy nat-ural gas and transport it in cryogenic tankers. Liq-uefied natural gas (LNG) requires special export and import terminals, which are expensive to con-struct and have in some cases met with opposi-tion due to concerns about their vulnerability to fires as well as their aesthetic and environmental impacts. LNG also has higher upstream emissions than CNG because of the fuel requirements for transporting it over long distances.

Historically, to finance construction of the pipeline infrastructure needed to distribute natu-ral gas, suppliers entered into long-term contracts with customers for the purchase of the gas. These contracts generally linked the price of natural gas to the price of oil (the product whose share of the heating market natural gas producers hoped to undercut) and included take-or-pay clauses that required customers to pay for a minimum amount of natural gas, whether they needed it or not. Long-term contracts also provided custom-ers with supply security and a degree of insula-tion from price fluctuations.5

During the last century, suppliers in North America and Europe developed robust pipeline networks to transport and distribute natural gas, which was then used, among other applica-tions, to generate electricity, to provide heat for buildings and industry, and as a feedstock in the petrochemicals industry. Asian countries such as Japan, South Korea, and Taiwan, which are

ecent developments have positioned natural gas for a renaissance. Tectonic shifts in the energy arena are trans-forming a natural gas landscape that

has been dominated historically by three rela-tively isolated markets in North America, Europe, and industrialized Asia. Natural gas is now becoming a truly global market, characterized (as with renewable energy) by greater geographic diversity of both supply and demand.

More abundant and diverse supplies of natural gas worldwide have reduced consumers concerns about the price volatility and limited availability of the fuel, renewing interest in the environmen-tal advantages that natural gas can provide. Of all major fossil fuels, natural gas burns most cleanly, emitting a fraction of the carbon dioxide, nitro-gen oxide, sulfur dioxide, mercury, and other pol-lutants that coal and oil release.1 Natural gas also can be used in a range of efficient power plant, vehicle, and heating applications.2

As a result, natural gas is being re-examined for its potential to supply baseload electricity, compet-ing with cheap kilowatts available from coal power plants. Between the insatiable Chinese demand that helped drive the slow but steady growth in coal prices over the last decade and the expectation that stricter emissions regulation will make coal plants more expensive to operate, natural gas is starting to look like a good deal for many utilities.3

Fifty years ago, natural gas played a modest role in the global energy economy compared to coal and oil. But over the last half-century, natu-ral gass share of global primary energy use has increased from 16 to 24 percent, while oil and coals combined share fell from 79 to 64 percent.4 (See Figure 5.)

Unlike solid and liquid fossil fuels, which can


The Renaissance of Natural Gas

gas. The first is the wide availability of inex-pensive coal in much of the world. Although modern natural gas power plants can be built more quickly and cheaply than any other type of utility-scale power plant, the cost of running a natural gas plant is much more sensitive to the price of the fuel than for other plant types.15 (See Figure 7.) When the price of natural gas is high, as it was during much of 200508, power system operators use natural gas plants primarily

large natural gas consumers but have very limited domestic supplies, must import virtually all of their natural gas as LNG, most of which they still secure through oil-linked long-term contracts rather than via pipeline.6

Because of the large costs associated with building pipelines, natural gas is much less com-monly used in the residential, commercial, and power sectors of developing countries. Even coun-tries that are rich in natural gas may not be able to afford the infrastructure required to utilize it. As a result, there is a wide disparity in the share of natural gas in the energy mix in different parts of the world, ranging from 47 percent in the Middle East to only 5 percent in China and India.7 (See Figure 6.) Significant differences in natural gas dependence exist within regions as well: in Africa, for example, Algeria and Egypt rely on natural gas for over half of their primary energy use, whereas South Africas natural gas use is negligible.8

Nigeria is home to the eighth largest natural gas reserves in the world and produced an esti-mated 1.3 trillion cubic feet (tcf) in 2008.9 But it consumed only 430 billion cubic feet (bcf), mostly in the power sector.10 It vented or flared an additional 670 bcfenough to supply Nor-way and Poland combinedbecause it lacked the means to transport it to end-users nation-wide.11 Globally, nearly 5 tcf of natural gas was flared in 2008, equivalent to about 5 percent of global consumption.12

Although Nigeria is seeking to increase its gas exports as LNG and through a newly constructed pipeline to Ghana, its situation resembles that of many major gas producers in the Middle East, where natural gas is frequently reinjected into the ground to enhance oil production rather than being sold or flared.13 This application is in part a result of the high price of oil relative to natural gas, but the relative lack of distribution infrastructure has also severely limited the use of natural gas in this gas-rich region of the world. Nevertheless, the International Energy Agency (IEA) projects that Middle Eastern demand for natural gas could increase rapidly over the next two decades.14

Aside from transportation and distribution infrastructure limitations, three other major factors have hindered greater use of natural

Perc

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Figure 5. Share of Global Primary Energy Use, by Energy Source, 19652009

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Figure 6. Natural Gas Share of Primary Energy Use, by Region, 2009



Although North America is largely self-suf-ficient in natural gas, and Asian gas consum-ers can now purchase LNG from a wide range of suppliers, the entry of China and India into global energy markets has raised concern about the sufficiency of natural gas supplies to satisfy a growing world appetite. In 2001, at a time when natural gas prices (and the fortunes of major gas producers such as Russia) were on the rise, a group of 11 nations began meeting as the Gas Exporting Countries Forum, informally known as the OPEC of natural gas.19 The groups stated mission is to identify and promote mea-sures and processes necessary to ensure that Member Countries derive the most value from their gas resources, a goal that many analysts have interpreted as an intention to become a natural gas cartel.20

Since the end of 2008, however, the world has experienced a natural gas glut. Although the global recession and the contraction in com-modity markets have contributed significantly to keeping natural gas prices low over the past two years, the discovery of new supplies in uncon-ventional reservoirs has transformed the game in a more fundamental way, and could keep prices low in the years ahead. Energy expert Dan Yergin and his colleagues at Cambridge Energy Research Associates have described unconven-tional gas as the most significant energy innova-tion so far this centuryand one that, because of its scale, requires a reassessment of expectations for energy development.21

Improved technology is at the core of the natural gas renaissance. In the 1970s, gas produc-ers in the United States began to develop tight sands using hydraulic fracturing, a method of injecting a mixture of water, sand, and chemicals into rock formations at high pressure to stimu-late microfractures and increase the formations porosity and permeability long enough for natu-ral gas molecules to flow into a wellbore. Since the 1970s, tight sands have grown to account for more than 30 percent of all natural gas produc-tion in the United States, and U.S. natural gas producers and service companies have become world leaders in developing these and other unconventional reservoirs, including coalbed methane and organic-rich shale.22

to generate intermediate and peak demand elec-tricity, relying on cheaper electricity, often coal, to meet the bulk of baseload demand.

Second, such price volatility, which can be affected greatly by external events (see Figure 8), has also left utility operators leery of becom-ing too dependent on natural gas.16 Jim Rogers, CEO of Duke Energy, one of the largest utilities in the United States, infamously likened natural gas to crack cocaine for the electric power sec-torimplying that it is all too easy to develop a habit for modern natural gas plants, which can be built cheaply and quickly, but hard to avoid withdrawal when price spikes make these plants prohibitively expensive to run.17

A third major factor that has hindered greater use of natural gas is energy security concerns, as the resource has been concentrated historically in only a few countries. Europe, particularly Central and Eastern Europe, remains highly dependent on natural gas imported from Russia. Rising nat-ural gas prices over the past decade enabled Rus-sia to leverage its control over Europes natural gas supplies for political ends. One resulting price dispute with Ukraine in January 2009 left hun-dreds of thousands of Europeans without heat for days, prompting European Union officials to seek means to reduce the regions vulnerability to interruptions in imports from Russia.18

2008

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Figure 7. Levelized Cost of Electricity of Selected Plant Technologies



Barack Obama and Hu Jintao announced the launch of a U.S.-China Shale Gas Resource Initia-tive, a program designed to apply U.S. shale gas expertise to assess Chinas potential.28 Chinese progress since then has been brisk: Royal Dutch Shell and PetroChina announced a joint venture in Chinas Sichuan province that same month, and PetroChinas parent company CNPC is part-nering with Canadian producer Encana in Cana-das Montney and Horn River Shales.29

These projects are all part of what industry consultant Wood Mackenzie has called Chi-nas race for supplya wide-ranging search to secure new sources of natural gas and other resources to meet rising energy demand.30 With urbanization and industrialization pushing up energy demand in the residential and industrial sectors, and with concerns about the environ-mental impacts of old coal plants prompting new emphasis on natural gas in the power sector, the Chinese government is deliberately priori-tizing a heavier reliance on natural gas. In June 2010, the countrys National Energy Adminis-tration announced that the 12th Five-Year Plan (201115) aims to double the share of natural gas in Chinas energy consumption from its current level of 4 percent.31

Natural gas demand is growing rapidly in India as well, where the power sector is antici-pated to be the largest driver of future mar-ket growth.92 Indian energy company Reliance Industries sealed two deals in 2010 to acquire

Hydraulic fracturing, as well as horizontal drilling techniques that increase the volume of a rock formation that can be developed by a single well, have unlocked vast new reservoirs of natural gas from low-porosity, gas-rich sedimentary rock formations that were previously uneconomical to develop. However, concern about the poten-tial environmental impacts of these approaches is widespread. Better regulation and adherence to industry best practices are needed to address the risks of water contamination, air pollution, and other community impacts.23 (See Sidebar 1.)

Organic-rich shales are currently the main driver of optimism and production growth in natural gas. In its 2010 Annual Energy Outlook, the U.S. Energy Information Administration (EIA) estimated the technically recoverable U.S. shale gas resource to be 347 trillion cubic feet, 30 percent higher than the EIAs 2009 estimate.24 Although the United States and Canada are far ahead of the rest of the world in identifying and developing shale gas, it is not likely to remain a North American phenomenon for long. Major potential shale gas resources have been identified in Africa, Australia, China, India, Europe, and South America, and the first wells were fractured in 2010 in the Poland, Tunisia, and the United Kingdom.25

For Poland, which currently imports 52 per-cent of its natural gas from Russia, the advent of economically exploitable domestic shale gas resources could spell the end of a heredi-tary dependence on Russian natural gas giant Gazprom. Coal is responsible for 58 percent of Polands primary energy consumption, and substantial shale gas development could offer a cleaner alternative for the nations power sector.26 Hungary, Germany, and Ukraine, also believed to have as-yet undeveloped unconventional gas resources, could see similar opportunities. In 2010, the U.S. State Department launched the Global Shale Gas Initiative (GSGI) to promote the sharing of lessons learned by U.S. regula-tors and members of the natural gas industry with their counterparts in countries that are just beginning to explore for and develop unconven-tional natural gas resources.27

China, too, is eager to develop its unconven-tional gas reserves. In November 2009, Presidents

2010

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1976 1981 1986 1991 1996 2001 2006 20110

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Hurricane Katrina

Beginning of Iraq WarCalifornia energy crisis

Figure 8. U.S. Natural Gas Prices, 19762010



imports began in 2004, although the countrys actual LNG imports in 2009 were only 445 bcf, equivalent to 24 percent of domestic natural gas consumption.34

The growth in LNG trade will affect global natural gas markets significantly. Anticipating increases in both prices and demand, natural gas exporters and importers around the world set off

more than 800 square kilometers in the Marcel-lus Shalean enormous, gas-rich sedimentary basin underlying much of Appalachia in the eastern United Statesand the Indian govern-ment plans in 2011 to auction leases in Indian states suspected to hold shale gas reserves.33 India is also investing in LNG import capacity, which has grown to 1.5 tcf per year since LNG

Sidebar 1. Addressing the Environmental Risks of Unconventional Gas Production

Over the past decade, the application of two drilling technologieshorizontal drilling and hydraulic fracturingto low-porosity rock formations such as deep organic-rich shales, tight sands, and coalbed methane deposits has dramatically increased estimates of technically recoverable natural gas around the world. Scaling up production of these resources involves environmental risks that must be addressed if new supplies of natural gas are to be extracted sustainably.

Improper well construction, including the use of faulty cement and steel tubing or casing, can lead to well blow-outs and contamination of ground water by methane, chemicals used during hydraulic fracturing, and highly saline water from deep rock formations. Several tools are available to drilling operators that can detect poor well construc-tion before hydraulic fracturing begins or natural gas begins to be produced, including cement bond logs and negative pressure tests, which test the integrity of the cement and casing. While hydraulic fracturing is being performed, opera-tors can use microseismic monitoring to detect the extent of the underground microfractures and ensure that these do not extend beyond the target formation.

At the surface, fracturing fluid chemicals, as well as the liquid and solid waste produced from natural gas wells after drilling and hydraulic fracturing, must be stored, transported, and disposed of safely to avoid leaks and spills of potentially toxic substances into surface and ground water. Creating containment structures around the wellpad, using closed steel tanks instead of open pits to store materials, and monitoring storage units and pipelines holding and transporting fluids at and away from the drilling site are important precautions against leaks and spills. In addition, public disclosure of the chemicals used in hydraulic fracturing is important to enable government and health profes-sionals to react swiftly and appropriately in case of exposure or contamination.

Horizontal drilling and hydraulic fracturing are water-intensive activities and can require millions of liters of water per well. Treating and recycling waste water on-site reduces the amount of fresh water required for hydraulic fractur-ing while also lowering the burden on wastewater disposal facilities and the risks of leaks and spills associated with transporting the fluids offsite. Drilling operators should also work with communities to manage the timing and volume of their water intake so it does not interfere with competing demands for water supplies.

The process of extracting natural gas releases emissions of greenhouse gases and other pollutants from compres-sors, pumps, and other equipment on the wellpad, as well as from trucks used to transport materials to and from the drilling site. Methane, a potent greenhouse gas, can be released during natural gas production, transport, and distri-bution. Careful monitoring of equipment and infrastructure and the installation of emissions control technologies are among many steps that operators can take to reduce emissions and air pollution from natural gas systems.

Finally, developing natural gas, as with any energy resource, affects the communities in which it occurs. During the days and weeks that a well takes to drill and be fractured, truck traffic, noise and light pollution, and use of public re-sources increase. Operators must work with local stakeholders to minimize the negative impacts of gas development activities on a communitys resources and quality of life.

Strict regulatory standards and oversight of well construction and operation are essential to ensuring drilling safety and environmental and community protection. In the United States, where regulation of well construction and opera-tion is left largely to the states, recent incidents of water contamination and other accidents relating to improper well construction suggest that not all states are adequately regulating and enforcing the protection of public resources during natural gas extraction. The U.S. Environmental Protection Agency is currently studying hydraulic fracturings po-tential impacts on water quality, and environmental advocates in New York and Pennsylvania are pushing for moratoria on shale gas drilling until the studys results are released in late 2012.

Source: See Endnote 24 for this section.



supercritical coal plants do on a lifecycle basis, and with many world governments putting a price on carbon, natural gas stands to pick up signifi-cant market share from coal in the power sector over the next few decades.42 (See Figure 10.)

The shift from coal to natural gas is happen-ing all over the world as communities pursue low-carbon electricity and as utilities, weigh-

an unprecedented boom in construction of new liquefaction and regasification plants before the recent recession sent prices plummeting.35 Over-all, LNG trade has grown steadily over the last decade, both in absolute volume and as a share of global natural gas consumption.36 (See Figure 9.) The IEA predicts that this share will continue to grow, driven in large part by increased exports from Africa, Australia, Latin America, and the Middle East.37

Although LNG typically has been sold in oil-linked long-term contracts, especially to Japan and South Korea, a growing amount is now being sold on spot markets, which allow LNG shipments to seek the highest bidder on a truly global market. This decades divergence in oil and natural gas prices (U.S. spot natural gas prices at their peak reached the equivalent of only about $80 per barrel of oil, while oil prices have been well over $100 per barrel) has greatly increased the differential between contract prices and spot pricesa trend that is encouraging consumers in Europe and Asia to buy more of their natural gas on spot markets.38 During 2009, major Euro-pean gas distributors E.ON and Eni renegotiated contracts with Russias Gazprom to reduce their exposure to oil-linked prices.39 India has also rebelled against high long-term contract prices for LNG, shifting its attention instead to cheaper LNG shipments on the spot market.40

With the current natural gas glut driving up competition for natural gas markets for the fore-seeable future, some exporters risk losing the market power they enjoyed under a paradigm of limited import options, binding long-term con-tracts, and oil-linked prices. Last year, the Gas Exporting Countries Forum prioritized a study on how to preserve oil-linked prices in natu-ral gas contractsprices that during 2009 were roughly double the European spot market price of natural gas.41

Aside from increasing supplies and fall-ing prices, a major political factor is expected to dramatically increase the demand for natural gas: concern about the sizable negative climate, environmental, and public health impacts associ-ated with traditional coal power plants. Modern natural gas combined-cycle (NGCC) plants emit about 50 percent less CO2 than new advanced

Expo

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Figure 9. Global Liquefied Natural Gas Exports, Total and as Share of Natural Gas Consumption, 200109

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IGCC = Integrated Gasification Combined Cycle; NGCC = Natural Gas Combined Cycle; Imported LNG = liquefied natural gas from Trinidad and Tobago; Domestic NG = U.S. compressed natural gas from combination of a) onshore conventional gas, b) onshore associated gas, c) offshore gas, d) Barnett Shale, and e) various coalbed methane fields.

Figure 10. Lifecycle Greenhouse Gas Emissions from Coal and Natural Gas Power Plants



tory certainty on power plant emissions. Ana-lysts estimate that if all coal-fired power plants in the United States were required to install sul-fur dioxide scrubbers to meet federal emissions standards, a growing number of small coal plants would cease to be economic to operate, and coal-fired electricity generation could fall almost 10 percent between 2009 and 2015.43 Governments from New Delhi to Denver have announced plans to retire old coal plants in favor of new natural gas capacity.44

Aside from the environmental problems asso-ciated with coal power plantswhich include emissions of ozone precursors, particulate matter, and mercury as well as issues surrounding coal mining and coal ash disposalthese facilities are plagued by another serious flaw: they make poor partners for variable renewable electricity sources such as wind and solar power. Thus, displacing coal with natural gas can not only deliver emis-sions savings, but also strengthen the grids abil-ity to accommodate greater variability.

ing the low construction costs of natural gas power plants against the high construction costs and anticipated additional costs of compliance with environmental regulations associated with coal plants, opt to take their chances on stable natural gas prices rather than wait for regula-

An LNG terminal in Shizuoka, Japan, with Mt. Fuji in the background.

Tnk3

a


Natural Allies in the 21st-Century Grid

ariability has traditionally been one of the most important challenges facing

utilities. Demand for electricity varies throughout the year, week, day, and even

hour as millions of appliances are switched on and off, thermostats are adjusted, and house-holds, businesses, and factories come to life in the morning and shut down at night. Power-system operators manage a portfolio of power plants, adjusting generation in real time using com-puter-based software so that it always equals the sum of demand, or load. Failure to balance load and generation can result in brownouts, black-outs, or power surges that can damage utility- or customer-owned equipment.

To meet demand, a system operator works like a sports coach, drawing from a large team of generating units. Each player or power plant has a particular skill set that is useful for different situations during a game. Some players may sit on the bench for most or all of the season but are available just in case.

The backbone of a generating portfolio has traditionally consisted of coal, nuclear, or geother-mal steam turbine power plants, whose large size and low operating costs make them well suited to provide large quantities of cheap baseload electricity. Operators generally run such plants all the time at their maximum capacity, interrupting generation only for planned or forced mainte-nance. Turning these plants on and off is a pon-derous process that can take days, and reducing or increasing plant load within its design minimum and maximum levels is slow and reduces plant efficiency.1 Nevertheless, as data from Texass elec-tric grid (ERCOT) demonstrate, many utilities regularly cycle steam-turbine plants, including those powered by coal. (See Figure 11.)

As load increases during the day, operators bring on intermediate plants. Unlike basel-oad plants, load-following plants are designed to be ramped, or throttled up and down. In the United States, natural gas combined-cycle plants are typically used as load-following plants, with utilities dispatching them in order of ascending cost. Not all electricity systems are organized this way, however: in India, which currently has lim-ited access to natural gas, generators tend to rely more on coal-fired power plants for intermediate as well as baseload generation.2

Finally, operators will use peaking plantsusually natural gas-fired simple-cycle com-bustion turbinesto provide electricity when demand is highest. Although any plant can be forced to cycle up and down, plants ramp at dif-

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20,000 Source: ERCOTGas TurbineGas CCOther

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Figure 11. Sample ERCOT (Texas) Load Curve, July 814, 2009

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in the same range of technologies as natural gas.Wind and solar add an additional layer of

variability to the system operators task. As the share of demand met from these variable sources rises, managing the power grid will require a range of new technologies, policies, and infrastructure. Although many regions have begun the transition to renewable energy, the sequencing of this transition has posed chal-lenges in some areas. The installation of new wind and solar power capacity has outstripped the development of transmission, new sources of firming generation, and enabling technolo-gies such as energy storage, demand response, and the smart grid.

As a result, some early adopters of wind and solar energy have encountered unexpected fric-tion between their 21st-century renewable elec-tricity and the 20th-century grid. For example, in places where wind power is a must-take resource and the grid includes a large share of coal-fired capacity, such as the U.S. state of Colorado, a sudden surge in wind generation could require utilities to rapidly ramp down coal plants, presenting challenges for balancing power generation efficiently.5 (See Sidebar 2.) Natural gas plants, in contrast, whether combined-cycle or simple-cycle gas turbines or reciprocating engines, have much faster ramping capabili-ties and operate more efficiently at partial loads, making them much better suited to accommo-date surges in wind generation.

Gas Offers Flexibility to the Grid

The integration of variable renewable energy presents challenges to utilities that generate most of their baseload energy from coal power plants. Unlike coal, natural gas can be used in a remarkably wide range of generating technolo-gies, from steam turbines and combined-cycle plants to combustion turbines, reciprocating engines, and fuel cells. Because of these plants diverse characteristics, utilities can use natu-ral gas to generate baseload, load-following, or peaking power. Moreover, with the exception of natural gas steam turbines, which have been ren-dered more or less obsolete by the invention of much more efficient combined-cycle plants, nat-ural gas power plants can be built more quickly

ferent rates, sacrifice various degrees of efficiency when they are operating below their full capac-ity, and have minimum design loadspoints below which they must be turned off completely. Peakers are typically less efficient than load-following plants but can achieve the most rapid cold starts, ramp most quickly, and operate rela-tively efficiently at minimum loads.

Natural gas-fired combustion turbines, essen-tially large jet engines, are the most common plants used as peakers and can start in about 10 minutes.3 Recently, some utilities looking for even more rapid response have invested in natu-ral gas-fired reciprocating engines, which can reach full output from a cold start in less than five minutes and lose less efficiency than both combined-cycle and gas-turbine plants when they are operated at less than full load.4

Intermediate and peaking plants may be used to provide spinning reserve to a gridgen-eration that is essentially kept idling in case the grid has an immediate need for power due to an unpredicted spike in demand or a sudden loss of power from another plant. These resemble team players who warm up in case they are needed. A range of other ancillary services, such as non-spinning reserve (generators that can achieve cold starts in less than 10 minutes) and regulation (generators that can turn up or down to compensate for generators that pro-duce more or less than they are scheduled for and keep the electricity systems voltage in the right range) also help keep the players working together smoothly.

Renewable electricity fits into this conven-tional fossil fuel-based paradigm at different levels. Hydroelectric power plants can respond rapidly, so they can be used to provide baseload, intermediate, or peaking power. Pumped storage units in particular are designed, like any energy storage technology, to return power to the grid during peak hours. Geothermal plants, which are expensive to site and build but one of the cheapest power sources to operate, are usually used for baseload power. Biomass is used most commonly in steam turbines, either combusted alone or co-fired with coal. Biogas, which may be produced from anaerobic digesters, biomass gasifiers, or captured from landfills, can be used



the Los Angeles Department of Water and Power, using a combination of its natural gas generation and transmission resources to back up the vari-able generation it will purchase from the Windy Point Wind Farm in Washington State. Announc-ing the contract, Calpines chief commercial offi-cer commented that it demonstrates the critical role natural gas generation will play in integrat-ing renewable generation into the marketplace and helping Californias load-serving entities meet their renewable energy needs.7 In the past few years, Finnish power plant manufacturer Wrtsila has supplied reciprocating engine power plants to provide flexibility to systems from Col-orado to Texas, describing their product as the wind enabler.8

and with lower capital costs than coal plants. Although natural gas has been considered a

cleaner alternative to coal for decades, the flex-ibility that it offers to electricity portfolios con-stitutes an additional critical way that it can con-tribute to a low-carbon energy economy. For the near future, natural gas is one of the most cost effective and widely available ways to store and provide energy to balance or firm wind and solar energy on a large scale, facilitating their penetra-tion into the energy system.6

Some power producers are already exploring innovative ways to use natural gas plants to back up variable renewable energy. The California-based Calpine Corporation recently signed a con-tract to provide up to 270 MW of firm power to

Sidebar 2. Wind Integration Hits Turbulence in Colorado

In 2007, the U.S. state of Colorado strengthened its renewable portfolio standard (RPS) to require utilities to gener-ate 20 percent of their retail electricity sales from renewable energy by 2020. With government support, along with excellent wind resources along the Rocky Mountains, Colorados wind energy industry was flourishing. Some 776 MW of new wind turbines were installed in 2007, increasing the states total wind capacity by 169 percent, and by 2008 the state was already generating an average of 6 percent of its electricity from wind alone.

But Colorado faces challenges in integrating renewable energy efficiently into its power mix. Just after four in the morning on July 2, 2008, winds began to pick up over part of the state. That morning, regional wind turbines were pro-viding a modest 5 percent share of the power generated, around 200 MW, to the Public Service Company of Colorado (PSCO), the states largest electric utility. Over the next 90 minutes, however, wind generation quadrupled to about 800 MW, then fell rapidly to around 200 MW. The entire wind event was over by 8 a.m.

Wind power is treated as a must-take resource in Colorado, which means that system operators had to turn down other power plantssuch as coal and natural gasto make room for the unexpected wind generation. In recent de-cades, the share of coal in Colorados electricity generation has declined from 92 percent in 1990 to only 65 percent in 2008, yet coal plants still provide the bulk of baseload power generation; meanwhile, natural gass share has increased from 4 percent to 25 percent. But at 4 a.m. on July 2, when power demand was low, natural gas accounted for only 10 percent of generation, while coal made up 60 percent. As a result, the surge in available wind power forced PSCO to rapidly ramp down at least four coal plants and then ramp them up again to accommodate the additional generation in the low-demand hours between 4 a.m. and 7 a.m.

Coal power plants, virtually all of which use steam turbines to generate power, are not designed to ramp up and down quickly. Steam turbines take days to reach full power from a cold start. Natural gas combined-cycle plants, by contrast, can typically achieve a cold start in about three hours, and they ramp up and down at a rate of about 7 percent of their capacity per minute. Steam turbines also become much less efficient when they are operated at less than full capacity, or partial load. Combined-cycle power plants, simple-cycle combustion turbines, and reciprocating engines all lose less of their efficiency as they are ramped down to partial loads.

Rapid cycling of coal plants could, at least in some cases, also lead to a spike in emissions penalties. U.S. coal power plants are generally fitted with some sort of emissions control technology to remove sulfur dioxide, nitrogen ox-ides, and other pollutants from plants flue gases, and these technologies are designed to be operated with plants that are running at full capacity. Emissions monitoring data from the U.S. Environmental Protection Agency reveals that in some cases, plants experience spikes in emissions rates after being cycled. When plants are cycled down or up more rapidly than their design ramp rates, emissions control devices may be temporarily overwhelmed.

Source: See Endnote 5 for this section.



Gas-Renewable Hybrids Combine Strengths

Some engineers have sought to mitigate the intermittency of solar energy through inter-ventions at the plant level. Concentrating solar power (CSP) in particular lends itself to a range of hybrid generation configurations because it utilizes a steam turbine to convert solar radiation to electricity. Hybrids offer a range of benefits: for example, natural gas-solar hybrids avoid the extra cost of generators, transmission, and per-mitting that separate solar and natural gas plants would require.9

The Solar Energy Generating System (SEGS) plants, nine parabolic-trough CSP plants built in southern California between 1985 and 1991, use natural gas to generate backup steam for the plants.10 In 2008, the plants steam turbines generated over 746 GWh of electricity, only 11 percent of which came from natural gas.11 The remaining 665 GWh constituted 77 percent of all grid-connected solar powered generation in the United States that year.12

Although using natural gas to provide backup power for the steam turbines of solar thermal plants is relatively inefficientthe SEGS plants achieved an average efficiency of just 24 percent when burning natural gas in 2008it nonethe-less enables solar thermal plants to produce reli-able electricity throughout the day.13 According

to one solar energy expert, the SEGS plants have not missed one hour of peak output in their life-time. When Mt. Pinatubo blew ash into the sky, they just burned a little more gas.14

Morocco recently built a 470 MW hybrid solar-natural gas combined-cycle plant using a technology called Integrated Solar Combined Cycle (ISCC).15 This plant combines heat from a 20 MW solar thermal field with waste heat from the plants gas turbine to power a steam turbine. Egypt and Algeria also both plan to build ISCC plants.16

The potential synergies between CSP and con-ventional steam turbines have also created interest in the feasibility of grafting solar thermal fields onto existing coal or natural gas power plants, using the steam they produce to replace steam that otherwise would be generated by burning fossil fuels. In southern Florida, the FPL Group utility is constructing a two-square-kilometer, 75 MW CSP plant to be added to an existing 3.8 GW power plant powered primarily by natural gas.17 The approximate cost of the addition was $476 million.18 The Electric Power Research Institute is investigating options for adding solar thermal capacity onto existing coal power plants in New Mexico and North Carolina.19

Despite growing interest in such hybrids, CSP is limited to sites with large, flat areas, plenty of direct sunlight, and the ability to get land permits and build transmission lines. It can also require large amounts of water for cooling, although many new CSP plants are being designed to use dry cooling systems that enable them to operate in water-poor areas such as northern Africa and the U.S. Southwest.20

Because wind and solar PV create electric-ity without an intermediate steam turbine, fewer examples exist at the plant level of hybrids that pair these renewables technologies with conven-tional power plant technology. One Colorado-based company, Hybrid Wind Turbines, has developed a hybrid natural gas-wind turbine sys-tem that uses natural gas to run a ground-based turbo-compressor, where the compressed air drives a turbo air motor to drive the generator.21 This technology was announced only recently, however, and it remains to be seen whether it can provide a cost-effective means of firming genera-

Cleaning solar panels at the recently built ISCC plant in Morocco.

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percent increase over 2008.25 Small wind power allows residential, commercial, and light indus-trial users, both on and off the grid, to create renewable electricity, but it still suffers from the intermittency issues that plague industrial-scale wind power. In 2009, about 20 percent of turbines in the 50100 kW range were sold for wind-diesel hybrid systems, which use diesel backup generators to firm variable power from off-grid wind in remote areas.26

One of the biggest strengths of solar PV is its ability to be installed at a range of scales on resi-dential and commercial rooftops, with virtually no additional land required. This makes it useful for densely populated areas. The average size of PV projects has increased in recent years, leav-ing very small off-grid systems with only about

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