The default solution to solve intermittency issues on the grid has always been peaker plants. These expensive, inefficient “peakers” are power plants that work only when there is a peak demand for electricity. They are generally gas-fired power plants, with some using oil as a back-up fuel.

As wind and solar power grow in prevalence in the energy sector, the more challenging it becomes to manage the grid’s inherent intermittency. And ironically, while the ultimate goal is achieving grid de-carbonization, wind and solar intermittency might make some grids reluctant to give up gas. For example:

• After California’s power grid failed during a historic heat wave last summer, the state extended the life of four natural gas plants that had been slated to retire.
• In the UK, at the start of September, when little wind was coming from the North Sea, the U.K. paid a power plant a record high of $6,850 per MWh to fire up a gas-fired peaker plant on short notice for 30 minutes.

But, since peaker power plants were only designed as an “emergency” source of occasional power, they are usually not made as efficient as base load power plants, and their price per kWh is much higher. Besides, they tend to emit higher rates of carbon dioxide and potentially harmful air pollutants.

As discussed in our last short-term power forecasting Forum, other alternatives to peaker plants are beginning to take on the challenge of controlling grid intermittency:

• improving grid interconnection or redesigning grid infrastructure,
• incorporating dispatchable clean energy sources (such as hydroelectric power or biomass, or geothermal & tidal),
• having overcapacity (so that sufficient energy is produced even when weather is less favorable),
• implementing Energy Storage solutions,
• and doing power Forecasting (which at the same time helps better manage all of the solutions mentioned above).

The attraction of batteries and LDS technologies

The main advantage of gas peakers over generators is that they have low O&M costs, since they will operate only at times of peak demand, and still fetch a far higher price per kilowatt hour than base-load power plants. Still, since they are used infrequently and only for a few hours per year - sometimes as little as 100 to 300 - it's becoming hard to justify the investment in building new ones while energy storage costs are declining.

According to Shayle Kann - senior adviser to the energy research firms GTM Research and Wood Mackenzie - "energy storage is starting to get very close to the point where it can just beat a gas peaker, head-to-head, purely on an economic basis. But it is not just economics, improvements in battery-operating technology mean storage now outperforms gas-fired peaking plants both in terms of speed and reliability of response, which are the bases of gas technology’s biggest claim to a place in the future of renewable-energy-based energy systems.

Hence, the attraction of energy storage: they’re cleaner than gas plants, can be installed closer to areas of demand (helping to reduce transmission costs on the discharge side), and are getting cheaper every day. Besides, on the input side, a battery absorbs power from whatever source is available, be it gas, nuclear, solar, or wind, and discharges when needed, either at peak demand or during the night when a solar power plant is down.

Additionally, there are risks associated to keep operating gas peaker plants.

Recent reports find that risks to shareholders, tax payers and electricity customers, posed by investing in gas peaking technology, are growing. They include:

• The volatility of gas fuel prices
• The uncertainty of gas supply volumes and
• The risk of premiums being imposed on such carbon emitting technologies
• The risks of political decisions to phase-out gas

USA's market

Natural gas plays an important role in the United States’ electricity requirement today, as shown in Figure 1; by 2020 it made up 40% of US electricity generation.

Figure 1. Annual US electricity generation from all sectors (1950-2020). Source: U.S. Energy Information Administration (EIA), Monthly Energy Review.

However, the market is expected to change over the next few years. Even though wind and solar make up only a small share of U.S. electricity production today, they're poised to supply 70% of new power plant capacity built in 2021, leaving natural gas to only account for 16 % of new power plant capacity.

By the end of the decade, McDermott forecasts that gas will no longer be the largest producer of electricity in the U.S, as shown in Figure 2.

Figure 2. Power shift - output from renewables is forecast to exceed natural gas by 2028. Source: June 2020 Morgan Stanley analysis.

This change in the market landscape is mainly driven by economics: the price of power from solar arrays and onshore wind turbines continues to plummet, and both technologies lack fuel costs, leading to lower LCOE. Today, renewables already beat natural gas as a cheaper new power source in windy and sunny counties.

The arrival of big-storage batteries has also helped in the recent widespread integration of alternative energy sources. Solar farms backed up by batteries are already beating out gas, in terms of cost, in parts of the U.S. Southwest, thanks, in part, to sharply falling prices of lithium-ion systems.

But, this market landscape change is also driven by politics. Several states already have legal mandates to reach 100% renewable or carbon-free electricity by 2050 or sooner, and others have established mandatory goals below 100%, or voluntary targets. Regardless, more than half of the US states have established renewable-energy targets that are pushing utilities away from gas.

However, natural gas will likely remain the dominant electrical source in the U.S. for much of this decade and will keep playing an important role through gas peaking. There are many communities that rely today on more than 1,000 natural gas- and oil- peaker plants to meet requirements of infrequent peaks of electricity demand.

Figure 3. Energy Storage Peaker Plant Replacement Project. Source: PSE, 2021.

Study author and lead researcher Elena Krieger, PhD, Director of Research at Physicians, Scientists, and Engineers for Healthy Energy (PSE), stated that the US is “at a turning point on the electric grid, where energy storage is becoming economically competitive with fossil fuel power plants, beginning with peaker power plants, which are some of the most expensive resources on the grid.” She further expressed that, “in states that don’t have coal power, these plants are also often the most polluting plants on the grid in terms of rate of emissions, or tons of criteria pollutants per megawatt-hour of generation.”

She added that, as the clean energy transition moves forward, this approach can set a precedent for a broader transformation of the electric grid, where greenhouse gas reductions can simultaneously yield health, environment, and equity benefits.

Researchers at Physicians, Scientists, and Engineers for Health Energy (PSE) developed the Energy Storage Peaker Plant Replacement Project to identify peaker plants that show potential for replacement with more environmentally friendly energy alternatives. Plants in California, Arizona, New Mexico, Nevada, Texas, Florida, New York, Massachusetts, and New Jersey were analyzed based on their typical operating patterns, emissions, local grid requirements, and the demographics of nearby communities. You can learn more about this Energy Storage Peaker Plant Replacement Project in the US through this link.

European Market

In the mean timew, in Europe, with the price of gas more than tripling this year and the demand for flexible energy sources increasing, any business exposed to gas is likely to reap the returns. Gas producers, such as Equinor and Gazprom, are poised to benefit from the gas markets staying tight into 2025, as suggested by Bank of America analysts in a note placing “buy” recommendations on their shares.

Matt Clare - founder of Arlington Energy, a developer and manager of energy transition assets, including peakers , says he and his partner started the firm to invest in gas peakers after they connected the dots on a pattern showing: coal plants being decommissioned, few nuclear plants being built, and a general distaste for using very large gas plants, both for being carbon intensive and the need to run them for eight hours to make a decent return. But, with such high gas prices, he found that gas peaking is profitable as well as necessary in the current energy transition space.

Conclusions

Over time, batteries and alternative energy storage technologies will become even more economical as a source of peak energy, as their costs of battery production fall, and the prices of energy from proliferating renewable generation technologies also becomes cheaper. But it is not just costs that should be paid attention to. Political measures are also being taken to replace gas entirely, and batteries are able to provide stability and security services to the grid with no carbon emissions during the discharge of their energy.

Eventually, gas peakers will phase out, but, for the next decade, natural gas will certainly keep playing an important role in the energy transition process.. It is already difficult to justify the need of new gas-fired power plants for peaking, as energy storage solutions are already economically competitive and carbon-free. But, existing peaker plants will keep operating, and this doesn't mean grid decarbonization cannot be achieved - Carbon Capture or other emission reduction technologies can be utilized for existing peaker plants, if costs keep going down.

If you are interested in learning more about how to increase gas-fired power plants’ efficiency, as well as how to reduce carbon emissions and air pollutants, you might want to take a look at this framework.

What are your thoughts of the role of gas peakers in the energy transition to solve grid intermittency?

References and further reading

• Mellor, Sophie. Europe’s messy transition to clean energy is making some investors very rich. Fortune. (October 5, 2021). Link.
• Casale, Jaclyn. Opportunities for Replacing Peaker Power Plants with Energy Storage Across Nine States. PSE. (May 14, 2020). Link.
• Malik, Naureen; Eckhouse, Brian; Merrill, Dave; C.F. Lin, Jeremy. Peak Gas Is Coming to the U.S. Sooner Than Anyone Expected. Bloomberg. (October 22, 2020). Link.
• Newbery, Charles. Energy Storage Poses a Growing Threat to Peaker Plants. GE. (October 1, 2018). Link.
• Filatoff, Natalie. Battery storage systems 30% cheaper than rival gas peaker plants for firming renewables. PV Magazine. (April 12, 2021). Link.
• Spector, Julian. Almost All New US Power Plants Built in 2021 Will Be Carbon-Free. (January 14, 2021). Link.