(June 2012) Northeast Utilities closes Nstar acquisition; NextEra announces $600 million stock offering; PPL acquires AES power plants; plus debt and...
Fuel for Thought: Some Questions on the Future of Gas-Fired Generation
not afford to invest in enough spare on-site capacity to ensure service reliability. Even large commercial and industrial users would not wish to pass up relatively cheap off-peak power, typically priced in the 1.5 cent to 3.5 cents per kilowatt-hour range at the various trading hubs. Thus, the electric grid is here to stay. As regional transmission organizations take over its management, the grid likely will become ever more cost-effective for delivery of relatively cheap power - from both existing resources and the new merchant plants.
High Fuel Costs. Another factor that will limit self-generation is the price of the natural gas fuel itself, and what that means given the projected relationship between delivered gas and electricity prices.
LHV efficiencies of proton exchange membrane (PEM) and phosphoric acid electrolyte natural gas-fired fuel cells - the fuel cell technologies best suited for residential and commercial markets - are roughly 40 percent (including energy losses in the conversion of natural gas to hydrogen, which is the actual fuel). Microturbine generators have an LHV efficiency of about 30 percent. Therefore, without credits for productive use of the waste heat, the cost of gas alone can equal or exceed the cost of purchased power.
Table 1 shows some recent projections of delivered natural gas and electricity prices in key markets in 2015 and 2020. For example, at current microturbine-generator heat rates of about 12,500 Btu per kilowatt-hour (higher heating value, or HHV, basis), it is obvious that the projected cost of gas at commercial rates would exceed the projected price of electricity in the commercial market. Of course, the energy service companies and utilities marketing microturbines in the 30- to 75-kW capacity range now offer promotional gas rates - typically $3.50 per million Btu. That rate seems a little low for annual consumption levels at, say, 80 percent load factor of 2.6 to 6.6 thousand cubic feet (MCF).
Then there are non-fuel operating and maintenance costs on the order of 0.5 cent to 1 cent per kilowatt-hour and capital charges on the order of 1.3 cents per kilowatt-hour on installed costs that today still are in the $600 per kilowatt range. These costs bring the total into the 7 cents per kilowatt-hour range, even at promotional gas rates. That rate is barely below today's average commercial electricity prices.
On the positive side, however, it is true that microturbine generators are cogeneration capable (albeit at higher investment costs). Thus, by 2015 to 2020, installed costs in 1997 dollars probably will have dropped to the projected value of $350 per kilowatt. Also, the low efficiency of 30 percent (LHV basis) should have improved by then.
Interconnection Costs. There also appear to be inherent limitations on the market penetration of microturbines other than for peakshaving, standby, premium power supply and remote locations. Widespread use in supermarkets, fast-food chains, etc., as primary sources of power, especially with the uncertainty of the tariff for connected load charges by the local utility, seems unlikely. In addition, there are the market entry barriers of complex and widely varying interconnection rules.
Yet, even with