Has National Grid put another nail in gas’s coffin?

Who would be a gas generator? Despite the ejection of coal plants from the generation stack (and good riddance, I say), gas has got less and less of the wholesale energy supply market. It has been squeezed out between our growing renewables portfolio and the floor provided by nuclear, and it is increasingly missing out on lucrative high-priced periods because of the addition of gas engines and storage.

The situation has not been fatal, although it has certainly prompted a few closures, pushed along by the suspension of the Capacity Market as well as other uncertainties like the cost of carbon or of transporting gas.

Gas operators have survived by finding a new niche as the industry’s ‘go-to guys’. Balancing? Frequency response? Black start? Inertia? Gas operators have looked at their large rotating machinery and said “we can do that”, making scarcer energy revenues just a part of the mix of income.

What must have come as a very unwelcome shock is the news from National Grid that it wants to be able to operate the grid with all those services from other sources – renewables, storage, demand side response etc – at times when demand is covered by low-carbon generation. The newly independent Electricity System Operator has set out a road map to develop the necessary markets for ancillary services and it is aims to reach that goal by 2025.

What’s the problem? For all that gas plant have done to talk up the flexibility they can bring to the system, the fact is that they are not best placed to do it. They have done an excellent job of running plant as flexible units, even though they were designed to operate best at baseload, and gas turbine manufacturers have responded with upgrades that will allow them to be operated more flexibly – Uniper will be carrying out such an upgrade at its Enfield plant shortly. But all that cranking up and down places extra stress on the plant and ages it faster – and a battery, or a wind farm feathering its blades, can ramp up and down much faster. In open markets for ancillary services, gas will often be beaten.

Of course, that applies only when the wind blows or the sun shines. At other times – at the moment – gas will have far less competition.

Where does that leave gas? Lobbying against interconnectors, being queasily hopeful that nuclear reaches the end of its life (and perhaps that new nuclear is further delayed), fighting it out for what’s left of those revenue streams and hoping for a still, cold winter. It’s a hard model to build a business on – and it makes a Capacity Market that pays those plant to stay on the system throughout long periods of inaction even more important.

Who would be a gas generator? Fewer and fewer companies, is my guess.

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