Natural gas is king, right? Maybe not.

With its cheap fuel prices and low emissions, natural gas plants are king of the power sector today. Right? Recent news suggests maybe not.

News broke last week that one of the largest utilities in the United States, PG&E, plans to replace three Calpine gas-fired plants with approximately 500 megawatts of battery storage. Utility Drive reported that:

"The [California Public Utilities Commission] authorized PG&E to issue a solicitation for energy storage projects to replace three power plants that would otherwise require reliability must-run (RMR) contracts."

The news may come as a jolt to some, but it shouldn’t. We’re likely to see more natural gas stories like this. As Uptake’s Michael Donohue just wrote in Utility Dive, natural gas’ reign is likely to come to an end sooner than most people anticipate.

"Although conventional wisdom says natural gas will continue its U.S. expansion and continue to gain a larger share of the market… gas’ reign may come to an end – and in fact, rather quickly."

This doesn’t mean the immediate end of natural gas plants or that they can no longer compete in the market. Instead, it means that every fuel source – even those that are currently winning on low costs – has to become more efficient.

This scenario is why one of the largest global power companies is using Uptake’s Asset Performance Management (APM) software at a natural gas plant in Central America. Our APM application uses industrial artificial intelligence (AI), real-time asset data and the world’s largest library of equipment failure data to improve the plant’s heat rate to produce more megawatt hours and reduce fuel spend.

If more operators across the power sector take advantage of data-driven technologies like APM to gain competitive advantages, significant untapped value will be unlocked for forward-thinking businesses. The World Economic Forum reports that technologies that help utilities optimize their assets have the potential to unlock $387 billion in new value for the global power industry within the next decade.

So why did PG&E – and potentially others – make this decision? PG&E didn’t cite one specific reason for its decision, but the three drivers that Donohue outlined in his oped are changing the economics for today’s natural gas plants:

  1. Too much capacity for current, future demand: Combined cycle natural gas plants, the most efficient configuration, operate at around 55 percent of their capacity. There remains plenty of room for more electricity to be generated with the existing fleet if it is needed, but electricity demand actually dropped last year and has essentially remained flat for the past several years.
  2. Natural gas lacks flexibility to ramp up, down quickly: With intermittent renewables making up 17 percent of generation today, demand for natural gas plants is coming in shorter spurts. These plants can meet that demand, but ramping up and down more frequently costs 2 to 5 percent more for the average fossil-fueled plant.
  3. Rapid advance of battery storage: Battery storage may be in its infancy, but it’s coming on strong. The high-end price for natural gas peaking plants is at about $200 per megawatt hour (MWh). Storage is closing the gap with the current price in the high $200s per MWh.

All three of these drivers are changing the economics to the point where utility-scale storage is now a real player in the market.

“Storage at this scale is likely now cheaper than the total cost to run the gas plants,” Alex Eller, senior energy research analyst at Navigant, told Utility Dive.

With today’s digital tools, there’s no reason this value cannot be unlocked for the industry at an even faster rate. Want to learn more about asset performance management and see how it can improve the productivity, reliability and safety of your operations? Contact us to discuss the business challenges your energy company is facing.

CONTACT UPTAKE'S ENERGY TEAM

Sonny Garg is the global energy solutions lead at Uptake. He previously served as the Chief Innovation and Information Officer at Exelon and president of Exelon Power.