Energy Transition Handbook - Flipbook - Page 36
Hogan Lovells
36
Gas to power
Given the current global dependence on hydrocarbons as fuel to generate electricity,
and the economic and operational challenges that currently exist with renewable energy
plants, natural gas has a key role to play in the decarbonisation agendas of many states
and global energy companies.
Gas has already played a crucial role in shifting
the world’s electricity mix over the past 50 years.
Between 1973 and 2018 the share of natural
gas as a fuel has increased from 12% to 23% of
the world’s electricity generation. Gas demand
is expected to further increase by almost half
from what it is today by 2040. The significance
of gas in the power mix is increasing as it is
considered as the partner fuel for renewable
energy-based generation, to level off operational
and dependability challenges of solar and wind
power projects.
Key risks:
•
wholesale electricity price volatility
to the extent not mitigated by a fixed
capacity payment
•
fuel cost volatility
•
low load factors if the plant is operated on
a mid-merit or peaking basis
•
financial support mechanisms for providing
system capacity and security of supply
•
carbon taxes or emissions levies
Natural gas is also considered as a cleaner
alternative to coal, which remains widely used
in power generation projects internationally
due to the low cost of developing and operating
a coal- fired plant. Coal-to-gas switching has
seen positive development in Europe and North
America, with the UK planning to phase out all
coal-fired power by 2025, Canada planning to
phase out coal-fired thermal power by 2030 and
Germany planning to the phase-out all coal-fired
power plants by 2038. Since 2010, coal-to-gas
switching has saved around 500 million tonnes
of CO2 - an effect equivalent to putting an extra
200 million electric vehicles (EVs) running on
zero-carbon electricity on the road over the
same period.
•
currency risk in relation to power purchase
agreements (PPA) revenues (for projects in
emerging markets)
•
off-taker counterparty covenant/credit risk
(for projects in emerging markets)
•
public opposition (in some markets)
•
merchant operation/residual value risk post
expiry of the PPA and decommissioning risk
•
back-up fuel storage and supply arrangements
•
political considerations – some countries in
which rapid development of gas-to-power had
been forecast have experienced slower progress
after changes in government or as a result of
local elections
Transition timelines and drivers will differ
between developed countries and developing
countries where electricity shortages are prevalent
and where developing economies depend on cheap
fuel for both consumers and industrial facilities.
•
inconsistency in policy - in many countries,
gas-to-power projects overlap separate
government departments – eg gas ministry and
power ministry - meaning that such projects
face two levels of oversight and regulation