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What is Merit Order ranking?
Merit Order is a ranking system used by electric utilities to choose the most cost-effective electricity to add to the grid at any given moment.
Thanks to the magic of computerization, microprocessors make thousands of decisions per day based on parameters set by the utility company to help the utility to make the highest profits — based on ‘the spread’ — the difference between what they pay energy producers (the wholesale price) and the price they charge their customers (the retail price).
The cheapest electricity on a per kilowatt per hours basis (kW/h) is always solar and wind power which has a merit order ranking of 0 (Merit Order 0) which makes wind and solar the automatic default for utility companies that take every bit of it they can get — and only then do they add power to the grid from the number 1 ranked energy source (Merit Order 1) which in the United States, is coal.
Coal would still be the default energy producer as it was for decades, but because coal has a fuel cost attached to it while solar and wind power don’t, coal ranks lower on the merit order ranking scale. Other electricity generators hold different positions on the merit order ranking scale, with natural gas ‘peaking power plants’ the absolute last choice for utility companies because the per kW/h cost of electricity generated by natural gas gas peaking power plants is so high compared to other energy producers.
The German Merit Order ranking system offers an easy explanation
In the German example, electricity rates are determined hourly and customers are charged the corresponding hourly rate.
For our purposes to explain merit order ranking, this works well. In Germany electricity rates drop by up to 40% during the hours in which solar or wind are active, and this is what Merit Order ranking is all about; Using the cheapest available electricity FIRST — and then filling the gaps with more expensive electrical power generators after all the solar and wind capacity is brought online.
Solar and wind electricity in Germany are rated at Merit Order 0 making them the default for utility companies as they meet their daily demand.
Once all of the available solar and wind capacity is online, only then are, (1) nuclear, (2) coal, and (3) natural gas, ramped up to meet the daily German demand curve.
NOTE: In the U.S. the normal Merit Order rankings are; default (0) for solar and wind, (1) coal, (2) nuclear, (3) hydropower, and (4) natural gas, although this order can change in some parts of the United States, depending which types of energy are produced in a given region.
Still using the German example; The Fraunhofer Institute found – as far back as 2007 – that as a result of the Merit Order ranking system – solar power had reduced the price of electricity on the EPEX exchange by 10 percent on the average, with reductions peaking at up to 40 percent in the early afternoon when the most solar power is generated.
Here’s how the Merit Order works
All available sources of electrical generation are ranked by their marginal costs, from cheapest to most expensive, with the cheapest having the most merit.
The marginal cost is the cost of producing one additional unit of electricity. Electricity sources with a higher fuel cost have a higher marginal cost. If one unit of fuel costs $X, 2 units will cost $X times 2. This ranking is called the order of merit of each source, or the Merit Order.
Using Merit Order to decide means the source with the lowest marginal cost must be used first when there is a need to add more power to the grid – like during sunny afternoon peak hours.
Using the lowest marginal costs first was designed so that cheaper fuels were used first to save consumers money. In the German market, this was nuclear, then coal, then natural gas.
But 2 hours of sunshine cost no more than 1 of sunshine: therefore it has a lower marginal cost than coal – or any source with any fuel cost whatsoever.
So, under the Merit Order ranking of relative marginal costs, devised before there was this much fuel-free energy available on the grid, solar always has the lowest marginal cost during these peaks because two units of solar is no more expensive than one. — Susan Kraemer
It’s as simple as this; With no fuel costs, solar and wind cost less.
Although solar and wind are expensive to construct initially (but not as expensive as large nuclear power plants, large coal power plants, or large hydro-electric dams) there is no fuel price to pay, no weather-related price spikes, fuel transportation costs, fuel supply disruptions, or lack of rainfall to factor into the final electricity price.
As solar panel and wind turbine prices continue to drop thereby encouraging more solar and wind installations, we’ll hear more about Merit Order ranking.
Only solar, wind, hydro-electric and nuclear power have a predictable kW/h price every day of the year. Coal, home heating fuel and natural gas, do not. And that’s everything to energy producers and their customers, the utility companies.
Although energy companies and utilities were slower than consumers to embrace renewable energy, some are now seeing benefit for their business model and henceforth, things will change.
Buckle up, because big changes are coming to the existing utility business model, changes that will benefit energy producers, energy consumers and the environment.
- The Variability of Renewable and Non-renewable energy (JBS News)
Natural Gas price lures customers from coal
>>China’s gas demand expanded 3.3 percent in 2015, while coal consumption dropped 3.7 percent, declining for the second year, according to the National Bureau of Statistics.
>>Coal use will slip further this year amid tepid demand from industrial users, according to the China Coal Industry Association.
>>The country’s LNG imports in the first two months of 2016 jumped more than 14 percent and shipments by pipeline rose 15 percent to a record.
by John Brian Shannon | December 29, 2015
COP21: The Paris Agreement is nothing if it isn’t followed-up with concrete action to meet the new emission reduction targets
The COP21 Paris Agreement is the first time that many nations have declared their intent to actually do something in regards to global warming, instead of the vague expressions and hand-wringing that we’ve seen until Paris 2015.
One should rightfully expect that LEADERS from each nation will appear at future COP events to discuss their nations’ successes (and any legitimate failures) as they navigate towards their intended carbon targets.
1. Some nations will seek to meet their COP21 targets via greater ENERGY EFFICIENCY
And that of course, is the best ‘bang for the buck’ route with regards to energy use and CO2 reduction.
No matter how energy is produced, some amount of CO2 will be created. Therefore, each MegaWatt(MW) of energy that remains unused, results in zero CO2 emissions.
This can also be the case where a mixed grid employs clean, renewable energy.
Both solar and wind power feature zero emissions as standalone energy generators — however, in a mixed grid with various energy generators, from coal to nuclear, to gas-fired and biomass, and true renewables like hydro-electric, solar and wind — once all of the renewable energy capacity is exceeded, the other electricity generators must then ramp-up to match the total demand of those hours of the day.
See how utility companies choose the type of energy they use to meet electrical demand on a minute-by-minute basis: Merit Order – How Utility Companies Choose Energy
With increased energy efficiency, many MW of electricity will never be required in the first place, therefore, the need for non-renewable energy generation diminishes.
2. LEAVING COAL is the next best way to meet carbon reduction targets
Many people are unaware that natural gas burns up to 1,000,000 times cleaner than the dirtiest brown coal (lignite) and up to 10,000 times cleaner than the cleanest black coal (anthracite).
Non-CO2 Emissions caused by coal burning: Quite apart from Carbon Dioxide emissions, burning coal produces significant amounts of toxic airborne mercury and heavy metal vapours, and toxic gases such as sulfur dioxide, oxides of nitrogen and the lung-damaging particulates like smoke, ash, and soot.
Then there are the thousands of tons (Alberta only) or millions of tons (globally) of fly ash that must be transported and safely buried far from aquifers.
Obscene water usage levels are also a factor with coal use, as coal requires 1100 gallons of water per MW, while natural gas requires only 300 gallons per MW.
CO2 Emissions caused by coal burning: In regards to the Carbon-Dioxide-only component of airborne emissions, burning natural gas emits only 45% of the CO2 compared to coal on a per MW basis.
By simply converting every coal power plant in the world to natural gas, global CO2 and toxic airborne emissions would fall by many Gigatonnes.
I suggest that it’s an important enough goal that IMF, ADB, UNDP and UNEP money should be flowing to developing nations to help them convert to natural gas by 2020.
Yes, I said by 2020.
We’re either serious, or we’re enjoying our time at the COP confabs.
It’s time to actually accomplish something on the Earth Atmosphere file, instead of producing more sound bites.
Harvard University Medicine says that coal-fired power generation causes up to half a trillion dollars of damage annually to the U.S. economy. Maybe more. And that’s just in the U.S.A.
3. Coal could be part of the solution instead of part of the problem – via significant investment in Coal-to-Liquid (CTL) fuels
Since 1955, South African gasoline (petrol) has been blended with super clean CTL fuel — which has a measurable and positive effect on vehicle emissions in the country.
The percentage of CTL to petrol has been rising over the decades as CTL capacity has increased. SASOL now blends a minimum of 30% CTL fuel into their petrol, which results in a very clean burn and lower engine maintenance.
Some South African airlines use clean CTL (coal oil) as a simple drop-in replacement for conventional petroleum (kerosene) fuel. Unlike conventional aviation fuel, CTL fuel is completely smokeless (and, bonus!) jet engines using CTL fuel require less maintenance.
CTL fuel blends reduce CO2 emissions for aircraft and cars and light trucks by 50% — and non-CO2 airborne emissions such as sulfur dioxide, oxides of nitrogen and particulate matter (smoke and soot) are virtually eliminated.
Thanks to the FISCHER-TROPSCH (catalytic) process, super clean-burning CTL fuels can be created from even the dirtiest brown coal.
4. We can’t have enough renewable energy capacity, especially now that it has attained price parity with conventional energy
As a long term goal, we need to get to 50% renewable energy and 50% (any combination of natural gas and nuclear) for our primary energy generation in order to hit a reasonable CO2 target of 366PPM (the much advertised 350PPM CO2 target is noble, just that it’s utterly impossible to hit as long as there are 7 billion people on the planet) yet 366PPM is theoretically possible were all the stars were to align, and is a noble enough goal in itself.
Many nations have already hit their renewable energy targets, with some exceeding 90% of demand met by renewable energy.
Laos, Costa Rica, Kyrgyzstan, Tajikistan, Burundi, Ethiopia, Nepal, Democratic Republic of the Congo (DRC), Zambia, Mozambique, Iceland, Albania, Paraguay, Bhutan, Lesotho, Tokelau, all get more than 90% of their primary energy from renewable sources.
Some are now at, or very close to, 100% renewable energy. For instance, Costa Rica hit the 99% renewable energy mark this year. In 2016, Costa Rica is likely to become a renewable energy exporter.
Denmark produced 140% of its primary energy demand in 2015 with renewable energy. Some 40% of Denmark’s electricity was exported to neighbouring countries in exchange for for cold. hard, cash.
And Scotland hit its 2030 target (50% renewable energy) way back in 2014. At the rate Scotland is adding renewable energy to its main grid and microgids, it may reach 100% renewable energy before 2040.
So it can be done.
SUMMARY: If we as a species, simply increase our total energy efficiency by 30% (a reasonable target) and legislate all coal-fired power generation to convert to natural gas by 2020 (merely accelerating what is already occurring due to market forces) and continue our present level of coal extraction for the purposes of creating super-clean CTL fuels, we would (by those changes alone) give ourselves an extra 15 years to find the best solutions to our pressing airborne emissions problem.
Again, the IMF, ADB, UNDP, UNEP, U.S. Dept of Energy, the EPA, COP21 sponsors, the World Bank and major corporations should be setting a good example with massive investment.
Finally, thanks to Bill Gates for his LEADERSHIP and PHILANTHROPY not only at COP21, but over the past decades — directly improving the lives of many people on this planet and supporting real and positive change in our shared global commons.
- Adoption of the Paris Agreement at COP21 (UNFCCC)
- The Paris Approach to Global Governance (Project Syndicate)
- Bill Gates Leads Billionaires in $2 Billion Climate Investment (Bloomberg)