Natural Gas

Generation

The story for natural gas generation is the opposite of that for coal (Figure 75). As the requirement to reduce carbon emissions tightens and the associated carbon price rises, natural-gas-fired generation becomes more economical than coal-fired generation. In 2010 and beyond, electricity generation from natural gas is between 17 percent and 76 percent higher in the carbon reduction cases than in the reference case projections. Overall, between 1996 and 2020, natural gas generation increases by almost 500 percent in the most stringent carbon reduction cases, and even in the 1990+24% case it

2020 Source: Office of Integrated Analysis and Forecasting, National Energy Modeling System runs KYBASE.D080396A, FD24ABV.00803988, FDOGABV D0803988, and FD03BLW.D0803988

is more than 30 percent higher than in the reference case by 2020. Although it may be expensive to stop using low-cost coal plants, replacing them with efficient natural gas combined-cycle plants reduces carbon emissions per kilowatthour of electricity generated by nearly two-thirds.

The rate of increase in natural-gas-fired generation varies over the 24-year projection period (Figure 76). When carbon emission limits are first imposed in 2005, there is rapid growth in natural gas generation, both because the rising carbon price makes existing natural gas plants more economical than existing coal plants and because new natural gas plants are added quickly. After the initial shift to natural gas, the growth in natural gas generation continues, but at a slower rate. In the later years of the projection, natural gas generation does not increase as rapidly, because carbon-free renewable technologies become economical as the demand for electricity grows and natural gas prices increase.

In the carbon reduction cases, power plant use of natural gas (excluding industrial cogeneration) is projected to rise from roughly 3 trillion cubic feet in 1996 to between 8 and 12 trillion cubic feet in 2010 and between 12 and 15 trillion cubic feet in 2020. The projected increase in demand for natural gas in the electricity sector contributes to higher gas prices overall. As a result, only small increases are projected for gas demand in other sectors for the less stringent cases. In the more stringent cases, gas demand in the other sectors (excluding industrial) actually declines. For example, in the 1990+9% case, electricity sector gas use in 2010 is 57 percent higher than projected in the reference case, but total gas consumption is only 10 percent higher (see Chapter 5 for a discussion of natural gas supply).

Generating Capacity

There is only a little variation in the projections of total natural-gas-fired generating capacity across the carbon reduction cases. On the other hand, there are differences in the types of natural gas plants projected to be built (Figure 77). In the more stringent carbon reduction cases, with higher carbon prices, the mix of natural gas plants shifts from relatively inefficient simple natural gas turbines and older steam plants to more efficient combined-cycle facilities. The trend toward more efficient gas-fired technologies would be even stronger in the 1990-3% case without the significant reduction in electricity demand that is projected relative to the reference case (see below, Figure 84).

Figure 77. Projections of Natural-Gas-Fired
Electricity Generation Capacity, 2010

A critical question is whether new natural gas capacity can be built in sufficient quantity and in the right places to reduce carbon emissions to the levels required by the Kyoto Protocol. For example, in the 1990-3% case, the amount of capacity, mostly natural gas, projected to be built in some years far exceeds the amount of capacity built in any year since 1983. The average amount of generating capacity brought on line each year since 1983 has been around 10 gigawatts (33 typical plants)." The peak year was 1985, when just under 22 gigawatts of capacity was added. In the 1990-3% case, annual additions are projected to exceed 28 gigawatts (93 typical plants) in some years.

Some gas-fired plants are expected to be built to meet growth in demand, but most are likely to replace retiring coal plants. From 2008 to 2020, the projected additions of generating capacity in the 1990-3% case average 24 gigawatts annually, with just over 28 gigawatts in 2009. This level of construction is high but not unprecedented. It is actually less than the amount of capacity that was built annually during the 1970s, when the demand for electricity was growing at more than twice the rate projected in the reference case.

Given time and forewarning, the natural gas plant design and construction industry should be able to meet the challenge presented in the carbon reduction cases; however, the prices for new gas-fired facilities might rise above those used in this analysis. In addition, the situation could be exacerbated by the fact that inany other countries may also be turning to natural gas in order to reduce their carbon emissions.

Not only will a large number of new natural gas plants have to be built, they will also have to be built in the right places. Today's electricity transmission system is constructed around major load and supply centers, connecting major cities to major power plants. The location of power plants is critical to the reliability of the electricity supply system. If, as expected, a large number of existing coal plants are retired to reduce carbon emissions. many of the new gas plants will have to be built at the locations of the coal plants they replace, in order to maintain the reliability of the system. (Biomass and wind plants must be built where their resources are available.) The alternative would be to reconfigure the transmission system to accommodate new plant locations. an undertaking that might require additional investment.

57

One option for adding new natural-gas-fired capacity would be to modify existing coal-fired plants to burn natural gas instead of coal. This option, however, may not prove to be economical. Generally, there are two approaches for converting a coal plant to burn gas. The first is simply to modify the existing coal boiler so that it can be fired with natural gas. From a mechanical perspective this is not terribly difficult or expensive. The required plant modifications would be expected to cost $70 to $80 per kilowatt of capacity, mainly for new burners and gas handling equipment (compressors, metering station, distribution headers, etc.). In terms of performance, there would be a small loss of efficiency, 2 to 5 percent, if gas were burned in a boiler originally designed to burn coal.

58

The main problem with this approach to plant conversion is the relative thermal inefficiency of existing coal plants. The majority of older coal plants consume between 10,000 and 10,500 Btu of fuel for each kilowat

thour of electricity they produce," as compared with 6,500 to 7,500 Btu of fuel input for each kilowatthour of electricity produced by a new gas-fired combined-cycle plant. Existing coal plants are economical because the fuel is inexpensive, not because they are thermally efficient.

As described above (see Table 18), in the absence of required carbon emissions reductions, existing coalfired plants are the most economical option for electricity generation. Conversion of existing plants from coal to gas is not the most economical option if the plant is to be used at a high capacity factor. If the price of carbon emissions rises, however, continuing to run the existing coal plant becomes less economical. Assuming a 70percent capacity factor and a carbon price of $100 per metric ton, it would make sense to abandon the plant (not the site) and build a new gas-fired combined-cycle plant. At a lower capacity factor, the carbon price would have to be higher before the operational cost savings from the greater efficiency of a new combined-cycle plant would offset its higher capital costs (Table 18).

The second approach to using gas in an existing coal plant would be to "repower" it by converting it into a natural gas combined-cycle plant. This approach would result in higher plant efficiency, but it would also be much more expensive than the first approach. In a typical repowering, the coal handling system and the boiler are replaced with new combustion turbines and a heat

recovery boiler. The only significant part of the plant that is maintained is the original turbine generator. This approach can be attractive at some facilities, but it is not without problems. New combined-cycle plants are packaged systems. The turbines, heat recovery boiler, and turbine generator are designed to work smoothly together for optimal efficiency. Because many older coal-fired plants were custom designed and built, they do not always come in standard sizes or configurations or with standard operational parameters. If such facilities are to be repowered, additional work will be required to integrate the system components. Given that for a typical combined-cycle plant the steam turbine generator accounts for between 10 and 22 percent of the capital cost of the plant, the additional work could easily drive the cost of repowering beyond what it would cost simply to replace the plant with a new, more efficient packaged combined-cycle plant.

Renewable Fuels

In the carbon reduction cases, U.S. electricity suppliers are expected to turn to renewable energy resources later in the projection period to meet the demand for electricity while reducing carbon emissions. Wind, biomass, geothermal, solar, and hydropower resources generally are thought to have less environmental impact than fossil fuels; they are domestically available; and in some instances they have begun to penetrate U.S. electricity markets. Significant growth in the use of nonhydroelectric renewable resources for electricity generation is expected to accompany efforts to reduce carbon emissions (Figure 78).

Figure 78. Projections of Nonhydroelectric Renewable Electricity Generation, 2000-2020

The largest increases in renewable generation are expected after 2010 in the most stringent carbon reduction cases (Table 19). For this reason, the results of the 7percent-below-1990 (1990-7%) case are also discussed in this section. Before 2010, nonhydroelectric renewable technologies generally are not competitive with new natural gas plants, but their costs are expected to fall over time. With higher carbon prices, these technologies can be expected to play a significant role in reducing carbon emissions. In the reference case little growth in generation from renewables is expected. In the carbon reduction cases, nonhydroelectric renewable generation is 1.1 to 1.7 times the reference case level in 2010 and 1.5 to 4.8 times the reference case level in 2020.

Because of the lack of market experience with renewable technologies other than hydropower, there is considerable uncertainty about the costs of developing them on the scale that would be needed for large carbon emission reductions. It is also unclear whether electric system reliability can be maintained if large quantities of wind or solar, which have intermittent output, are developed. Although some environmental objections have been raised against some renewables, including negative effects on animal life, destruction of habitat, and damage to scenery and recreation, these effects are small in comparison with the alternatives. While wind and biomass technologies are expected to be the most important renewable technologies used to reduce carbon emissions, others-including geothermal, conventional hydroelectric, and solar power plants-may also play a role (Table 19).

Wind

Among the nonhydroelectric renewable fuels, biomass and wind technologies are expected to make the most significant contributions to carbon emission reductions. Projected growth in the wind and biomass industries, together with the natural gas industry, would at least partially offset the impacts of declines in the coal industry. The biomass industry in the United States today is small, but it could see large growth. Similarly, the wind industry, estimated to employ 30,000 to 35,000 people worldwide in 1995, could increase several times over in the most stringent carbon reduction cases. In some regions, wind is projected to provide a significant share of electricity supply. However, the ability of wind resources to meet large-scale U.S. electric power needs reliably and cost-effectively is uncertain. Wind power is an intermittent technology, available only part of the time during a day or season. As a result, EIA assumes that the maximum contribution of wind power will be limited to 12 percent of any region's total annual generation requirements (excluding cogeneration) to avoid reliability problems that larger shares might cause.

Subtotal

22

2.3

2.3

2.3

2.3

2.3

23

2.3

2.3

2.3

23

41.2

47.3

47 4

46.9

45.9

45.6

48.9

50.2

In the reference case, wind remains a minor contributor to both total renewable energy and total electricity supply through 2020 (Table 19), accounting for just 2 percent of generation from renewables and far less than 1 percent of total generation. In the carbon reduction cases, its contribution grows. In the 1990+9% case, generation from wind resources reaches 25 billion kilowatthours in 2010 and 108 billion kilowatthours in 2020, accounting for nearly 17 percent of renewable generation and 2.5 percent of all U.S. electric power. In the 1990-3% and 1990-7% cases, with greater carbon reduction requirements, U.S. reliance on wind power is expected to be higher, particularly after 2010. Generation from wind power reaches 36 billion kilowatthours by 2010 in the 1990-3% case and increases even more thereafter, reaching 123 billion kilowatthours in 2020. In the 1990-7% case it rises to 10 percent of renewab! generation in 2010 and 16 percent (143 billion kilowatthours) in 2020, accounting for more than 3 percent of all electric power output.

In terms of generating capacity, wind accounts for more than 11 percent of all renewables capacity in 2010 in the 1990-3% case and 26 percent of all renewables capacity in 2020 in the 1990-7% case (Table 20). Again, however, wind-powered capacity remains a relatively small share of overall U.S. electricity generating capacity, in no case exceeding 6 percent of the total. Wind power is already entering some U.S. markets, and hundreds of megawatts of new wind capacity is expected to enter U.S. service before 2000. In the carbon reduction cases, wind power expands rapidly (Figure 79). The projection for wind