Following a recent UN report on climate change mitigation, which laid out a raft of potential changes to the global energy system, headline writers concentrated on the massive shift to renewable energy outlined in the report. However, there was also a notable shift in tone on natural gas. The UN report expressly talks about the potential for clean-burning natural gas to be used as a “bridge fuel”, buying the world precious time to make the difficult shift to even cleaner forms of energy.
In the UN report, the sweetspot for natural gas is defined as running from the present day until 2050. In this timeframe the report proposes that natural gas-fired power plants take the place of non CCS-equipped coal-fired power plants in the electricity generation sector. Given that CCS is many years if not decades from full commercialisation the report can be seen as another challenge to the coal industry.
While the UN report might sound rather theoretical, the US has been moving in the proposed direction for several years. In President Obama’s 2014 State of the Union Address, natural gas – when “extracted safely” – was hailed as the “bridge fuel that can power our economy with less of the carbon pollution that causes climate change.” Development of the abundant shale gas resource has driven a wave of investment in gas-fired power plants with 6,861 MW of gas power capacity added in 2013, accounting for more than 50% of all new capacity.
In contrast, the US coal industry faced another tough year accounting for only 11% of new capacity installation in 2013. The long-term prospects for coal appear little better given that recently proposed regulations by the Environmental Protection Agency targets massive reductions in CO2 emissions from US power plants.
While the US example appears to back up the bridge fuel scenario, it also highlights serious issues. In order for the strategy to work, renewables must continue to expand massively. In contrast to gas, wind energy, the cheapest form of renewable energy, had a challenging year in 2013, with new capacity in the US falling by more than 90% compared to 2012. The reason for the volatility is primarily attributed to a minor tweak to the US tax incentive scheme, clearly demonstrating how policy and market forces need to be fully aligned to fulfil ambitious climate change mitigation strategies.
Frank Wright, Douglas-Westwood Aberdeen
+44 1224 264972 or Frank.Wright@douglaswestwood.com