Utilities May Be Putting Themselves at Risk with an Over-Reliance on Natural Gas

March 2016

As the utility sector seeks to create a cleaner energy future, natural gas has become an increasingly integral piece of the generation mix for many utilities. Given its inexpensive cost, we have previously seen more and more investments in natural gas; however, an October 2015 report released by the Union of Concerned Scientists (UCS) points out that states may be becoming over-reliant on natural gas. For each state, the report examines gas’ share of overall capacity (2014), projected gas capacity (2017), percentage increases in natural gas generation (2008-2014), percentage increases in emissions (2013), and natural gas capacity as a percentage of power plants being built (2014-2017).

Key Details
  • Eight states use natural gas for at least 50% of the electricity generation, and another 11 states use it for at least 25% of generation. Anything above 50% is considered high risk. Four states get more than 60% of their generation from natural gas: Rhode Island – 95%, Delaware – 83%, Nevada – 63%, and Florida – 62%
  • Eleven states have increased their share of electricity generated using natural gas by at least 10 percentage points, categorizing them as high risk
  • In 26 states, more than half of the new power plants being built will be natural gas plants, with 100% of the plants being built in Delaware, Louisiana, and South Carolina slated to be natural gas
  • In five states, natural gas accounts for 60% or more of generation capacity: Rhode Island – 96%, Louisiana – 72%, Delaware – 69%, Florida – 61%, and Texas – 60%
  • Thirty-four states have a high-risk rating in at least one of the risk categories, with 16 states having high-risk ratings in three or more categories. Florida has a high-risk rating in all five risk categories
Implications
Much of the increased popularity in natural gas is linked to the current low cost. However, should the market price of natural gas turn upward, over-investments in natural gas may increase the risk of higher energy prices, idled generation infrastructure, and not enough renewable generation to pick up the slack. The outcome of the Clean Power Plan (CPP) debate will have a major impact on what utilities’ generation mixes will look like in the future. If the CPP is upheld, it will be critical for utilities to find a balance between natural gas investments and renewable investments. This will ensure they both meet the emissions standards and continue to provide the cheapest and most reliable energy to their customers.

More Information
Utility Dive: http://www.utilitydive.com/news/why-natural-gas-investments-could-spell-trouble-for-electric-utilities/413368/
UCS Report: http://www.ucsusa.org/clean-energy/rating-the-states-on-their-risk-of-natural-gas-overreliance#.VulkDeIrKM8

This report is part of ScottMadden’s Fossil Minute series. To view all featured Fossil Minutes, please click here.

Additional Contributing Author: Frank Nelms
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