Natural Gas versus Distributed Energy: Which is Less Expensive?

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The natural gas versus distributed energy conversation continues with the release of a much-anticipated California study that concludes that a centralized natural gas generation plant is less expensive — at least in the power-strapped area studied.

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By Who is Danny/

The conclusion came out of a report “Moorpark Sub-Area Local Capacity Alternative Study,” by the California Independent System Operator.

While the report came down on the side of the centralized natural gas generator, industry insiders say there is more to the story. The cost and benefits of distributed energy resources are quickly catching up with natural gas. In fact, they say distributed resources can be viewed as less expensive, depending on how the comparisons are calculated.

Matt Roberts, vice president of the Energy Storage Association, said that such cost comparisons generally focus on the levelized cost of electricity, a methodology that doesn’t work for energy storage systems. It fails to recognize the multiple grid benefits of distributed energy resources, such as energy storage, he said.

Distributed energy can readily compete with natural gas facilities, and do more to ensure a stable, reliable, and affordable grid. This is especially true when consideration is given to local benefits, such as reliability, resiliency and cost savings from deferring transmission and distribution improvements, according to Roberts.

The results of the study reinforce the concept that using “technology-enabled distributed energy resources for grid reliability is nearing price-par with new gas generation,” said Eric Young, vice president, industry solutions for Enbala Power Networks. “While the decision to build new central fossil generation versus using distributed alternatives must consider all micro, macro and long term needs, as the penetrations of controllable active and reactive energy resources grow, even gas will face a formidable challenge to compete.”

The study sprang from a decision by the California Public Utilities Commission approving a request by utility Southern California Edison to sign a long-term power purchase agreement with NRG Oxnard Energy Center for the 262-MW gas-fired Puente plant. The goal of the agreement was to meet the capacity needs of the Moorpark Sub-Area, where 2,000 MW will be retired due to state policies limiting the use of coastal water.

When NRG applied to the California Energy Commission for approval to construct the facility, the ISO offered to study alternative resources that might meet the needs of the area. The commission accepted the offer.

Working with the utility, the ISO looked at three sets of capacity alternatives to the Puente plant, quantifying the amount of preferred resources, energy storage or reactive power devices that would be needed to supply the area.

The three options all included distributed resources: 80 MW of energy storage-enabled demand response: 25 MW of solar PV and energy storage resources and about 30 MW of existing slow-responding demand response that was coupled with enough energy storage to meet the area’s needs, according to the report.

However, this additional 135 MW wasn’t enough to meet the area’s needs, so the ISO came up with three additional scenarios to meet the area’s reliability needs. They had to adhere to standards set by the North American Electric Reliability Corporation, the Western Electricity Coordinating Council and ISO.

Scenarios 1 and 2 identified the amount of in-front-of-meter battery storage or dynamic reactive power needed to meet the needs of the area. Under the third scenario, CAISO assumed that the 54-MW gas-fired Ellwood Generating Facility would retired instead of being refurbished, according to the report.

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The report found that Scenario 1, incremental distributed resources plus grid-connected battery storage, would cost $805 million; Scenario 2, incremental distributed resources plus a reactive device, would cost $309-$359 million; and Scenario 3, incremental distributed resources plus grid-connected battery storage (assuming retirement of the Ellwood Generating Station) would cost $1,116 million and the Puente Power Project—a 262-MW combustion turbine generator—would cost $299 million.

“The ISO’s cost comparison indicates that the estimated capital costs for scenarios 1 and 3 are significantly higher than the estimated capital costs for the Puente project,” the report said. “The estimated capital costs for scenario 2 is only slightly higher than the Puente project but this scenario does not provide the same level of protection against post-contingency load shedding to mitigate thermal overloads,” the report said.

The estimates only include initial installation and not operating or maintenance costs.

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  1. The final sentence of the article captures the deficiency of the CAISO report:

    “The estimates only include initial installation and not operating or maintenance costs.”

    Operating and maintenance costs, which includes fuel, is one of the largest cost components of a gas-fired plant. To exclude that from the analysis is a systemic flaw, or feature, depending on your perspective. Local economic benefits are also not counted.