Why Natural Gas Makes the US Power Grid Vulnerable

Source: By Naureen Malik, Bloomberg • Posted: Tuesday, June 27, 2023

America’s Biggest Power Source Wasn’t Built for Extreme Weather

Natural gas plants, now the top source of electricity in the US, are to blame for a disproportionate share of outages when the weather gets rough.

In the 15 years since the American fracking boom unleashed a torrent of abundant, cheap and domestically available natural gas, the country has leaned into the fuel — and hard. Hundreds of new, state-of-the-art gas power plants have come online with tens of billions in Wall Street backing in what’s now the biggest gas-producing nation in the world. Given its reputation for low-cost, clean and stable generation, gas dethroned coal in 2016 as the US’s No. 1 source of electricity. This year, it will make up a record 41% of power production, more than solar, wind, hydro and coal combined.

The grid’s newfound reliance on natural gas was for more than a decade hailed as a breakthrough. It’s now one of its biggest vulnerabilities.

Although natural gas is often promoted as a “bridge fuel” to span the transition from coal power to renewable energy, the country’s vast network of gas plants, pipelines and the regulations that govern them were largely built without the realities of extreme weather in mind. Facilities aren’t uniformly winterized, and some rely on a single gas pipeline for supply. Many generators don’t have the ability to burn an alternate fuel or keep back-up gas on hand in case of emergencies. The US has the most sprawling and interconnected gas pipeline network in the world, stoking complacency that the fuel will always be there when needed. But increasingly it’s not, contributing to more than seven hours of power interruptionsfor US households on average in 2021, more than double the rate reported in 2013.

Because the American gas system operates with just-in-time delivery in mind, it’s hard to adapt when a climate calamity hits, especially in winter. Eventually, the country will utilize less natural gas amid the shift to renewables, but it relies heavily on the fuel in the meantime. And since even the newest gas plants are at risk of becoming obsolete once the transition to clean energy is complete, it’s hard to get the support to build more pipelines and the other key infrastructure that’s needed to shore things up.

That’s the takeaway from more than two dozen interviews with traders, regulators and power-plant operators, many of whom weren’t allowed to talk publicly because of $1.8 billion in pending fines for generators that failed this past winter on America’s biggest grid.

“If you have assets that you can’t get fuel to, it’s useless,” said Thomas Coleman, executive director of Grid Security Project and a former adviser to North American Electric Reliability Corp. “We have a broken system, and it’s threatening our national security and it’s threatening our economic viability.”

Just look at the grid operated by PJM Interconnection LLC. It’s the largest in the country with a reputation as one of its most reliable. And yet, in the days leading up to Christmas 2022, when a brutal cold snap hit much of the continental US, PJM’s system was pushed right to the edge of rolling blackouts.

And gas was largely to blame.

The largest power grid in the US serves 65 million people people in 13 states and Washington, DC, or about one in five Americans. It’s operated by PJM Interconnection LLC.

It’s generally considered to be one of the most reliable grids in the country given its ample operating reserves and the rich shale gas deposits located within its borders. Under the grid sit the Utica and Marcellus shale basins, which produce more than a third of all shale gas in the US. A vast but aging pipeline network feeds many plants directly with gas being produced from the wells.

On Dec. 21, forecasters predicted an arctic blast of air would slam large swaths of the US, including much of PJM’s operating area, in the coming days. This is a region typically accustomed to the cold, but the plunge of 29 degrees Fahrenheit over 12 hours on Dec. 23 would prove to be record-breaking.

At 5:30 p.m. on Dec. 23, PJM called a “maximum generation emergency action,” meaning any plant paid to be on standby was supposed to ramp up as high as it could until 11 p.m. Another emergency action was in effect from 4:25 a.m. on Christmas Eve. Here’s a look at the gas plants serving PJM’s grid that were online for at least an hour during those periods, according to Bloomberg’s analysis of data from Yes Energy that tracks generation using data reported to the US Environmental Protection Agency.

During the emergency, almost 20% of those gas plants ran at 100% or more for at least an hour. If they had been paid to be available, they’ll be rewarded for their performance.

More than half of the gas plants ramped up to a maximum rate of between 50% and 99% during those emergency windows.

More than 20% never got above even half capacity (shown). Many even dropped to 0% output at some point during the emergency period, for various reasons.

To be sure, every type of power plant on the grid that spans from North Carolina to Illinois had some failures in the bone-chilling storm that rolled eastward on Dec. 23 and 24, including nuclear and coal. But natural gas was the standout: Those units accounted for 63% of the failures while representing around just 44% of the total installed capacity. Generation performance during the storm “was not acceptable,” PJM spokesperson Susan Buehler said in an emailed response to questions. “What we need, and what we are working on with all of our stakeholders, regulators and policymakers, is for all of our resources to perform when called upon.”

PJM isn’t unique — in fact, by most accounts, it performed better than many neighboring grids, some of which reported widespread electricity interruptions or blackouts. But if one of the safest power networks just barely scraped by in December, experts can’t help but wonder: How will any of the country’s multiple and highly fragmented grids possibly manage to stay afloat long-term, especially as America uses more and more electricity all the time?

“That’s a crisis that’s coming,” Mark Christie, a member of the Federal Energy Regulatory Commission and one of the most powerful US energy regulators, said when asked about the state of the country’s overall power system. “It’s coming a lot closer and a lot nearer and a lot faster than even I thought a year ago when I first said we’re facing a reliability crisis.”

The colossal shift in America’s power supply toward natural gas has been decades in the making. Large-scale gas production from shale began around the turn of the millennium with the invention of modern-day hydraulic fracturing, a process that involves blasting water, sand and chemicals into underground rock formations to unlock energy reserves previously considered impossible to reach. Commercial output really took off around 2007 and 2008, ultimately ushering in a period of low and stable prices for domestic natural gas and kicking off a race to export the fuel in liquid form. Companies jumped at the chance to finance and install gas generators, which produce power with less than half the carbon emissions of coal. PJM’s grid alone added about 33 gigawatts of new natural-gas fired capacity between 2014 and 2022, enough to power more than 26 million homes, Bloomberg’s analysis of EIA data shows.

A jogger runs along Lake Michigan at sunrise as temperatures hover about -8 degrees on Dec. 22, 2022
A jogger runs along Lake Michigan at sunrise as temperatures hover about -8 degrees on Dec. 22, 2022 Photographer: Scott Olson/Getty Images

“I don’t think that transition is inherently problematic for grid reliability,” said Dustin Meyer, senior vice president of policy, economics and regulatory affairs at American Petroleum Institute, a trade group that represents the US oil and gas sector. “Nor do I think there is anything unique about natural gas that makes it more inherently unreliable or predisposed to fostering these sort of situations in a crisis.” Extending the gas infrastructure, including building more generators and pipelines, would make the system even sounder, advocates say.

For many, the first wake-up call to the system’s potential vulnerabilities was in January 2014, when the phrase “polar vortex” entered the American lexicon. As an unusual blast of arctic air slammed the lower 48 states, electricity use on PJM’s grid soared, forcing it to issue an emergency alert as generators tripped offline. Between plant malfunctions and fuel shortages, natural gas accounted for about 47% of outages in that event, despite making up around 36% of capacity, EIA data show.

“As you rely more on natural gas, or one fuel, you will see more and more spikes in power prices,” Roshan Bains, then director of utilities power and gas at Fitch Ratings who’s now at Siemens Financial Services, said at the time. “Rolling blackouts would be more of the norm because of the aggravated fuel supply.”

Nearly a decade after Bains’ dark prognosis, the grid — now even more reliant on natural gas than before — was again put to the test. As a flash freeze caused temperatures to plummet this past December, PJM lost nearly a quarter of its power supply.

Of course, the power almost always goes out for some consumers during big weather events, either from downed wires or breakdowns at aging plants. But the big surprise during this past winter’s frigid weather was the sheer number of gas plants, including newly constructed ones, that were offline for some or all of the storm. During PJM’s two emergency calls to ramp up to maximum output, more than 20% of its operating gas-powered plants never got above even half capacity, Bloomberg’s analysis of data from power-market data provider Yes Energy show.

And some gas plants, like Indeck Niles Energy Center in Michigan, didn’t produce any power at all during the grid’s emergency calls to action, the data show. At that brand-new facility, which had only been commissioned a couple of months prior, severe winter weather caused critical equipment like transmitters and valves to freeze, said people familiar with the operations who asked not be identified because they weren’t authorized to speak publicly. Indeck Niles management declined to comment.

“Market dynamics during the storm make it clear that the overwhelming majority of facilities that didn’t run were failing to perform,” said Alex Bennitt, manager of fundamental analysis at Live Power, a unit of Yes Energy.

A disproportionate number of new-model combined-cycle gas plants failed, despite being younger and more efficient on average than other gas models. And perhaps most troubling of all, they didn’t all stumble for the same reason.

Some plants reported mechanical issues or failures to start, according to people familiar with the operations and official filings. Others couldn’t get the fuel they needed as frozen wells, falling pipe pressure or compressor station failures triggered a reduction in gas output or even force majeures — often without much communication from the producers themselves, the people said. Some plants tried and failed to schedule enough gas since they couldn’t reach any off-the-clock gas traders during the holiday weekend; instead, they were left scrounging for spare fuel in a series of frantic phone calls and texts. Others couldn’t get gas because they’re supplied by local utility pipelines that have to ship to households and businesses first, the people said.

Meanwhile, some plants that could have ordered and received gas in time chose not to because gas prices heading into the storm were too high to justify the low prices they’d earn selling the power, the people said. In hindsight, that decision not to buy gas for economic reasons was a mistake, said one plant owner, who asked not to be identified because of pending fines. But he wouldn’t have made that error had PJM more quickly and accurately predicted the peak electricity demand that would be required, he said.

PJM rejects the claim and has said it had secured more than enough supply to meet the soaring demand. Besides, PJM said, more gas-plant outages were from equipment failure than from gas availability. Generators have filed multiple complaints against PJM for what they claim was a bad demand forecast; PJM has called the finger pointing nothing but “Monday morning quarterbacking.” Plenty of other grids had trouble, and the threat of high penalties for underperforming generators was supposed to incentivize plants on PJM’s grid to perform.

The latest outages were the most widespread since the 2021 Texas blackouts, when gas supplies plummeted in the cold, causing power plants across the state to fail and contributing to more than 200 deaths. California, which is increasingly dependent on solar farms that go dark just as evening electricity demand spikes, has been at risk of rolling blackouts for years. Outside the US, too, strained energy systems are buckling under the weight of ever-growing demand.

Climate change is only making it worse. Historically, US grids could rely on each other to share power because the weather wouldn’t be as hot or as cold in all parts of the country at once. But that’s changing, with today’s outsized storms affecting bigger regions. December’s storm had more than 200 million Americans — around 60% of the country — under some form of winter weather advisory. Now with the start of US summer, when electricity requirements often exceed winter needs, there’s a growing fear parts of the world’s biggest economy will increasingly struggle to keep the lights on.

“We talk about black swan events,” Coleman said. These kinds of once-extreme storms “are normal events now.”

To be fair, there are some guardrails in place to help prevent problems like this from happening. For one, PJM is set up as a so-called capacity market, in which generators are paid to be available in case the grid suddenly needs power. It’s essentially an insurance policy, funded by consumers, to ensure the power stays on. If generators take capacity payments and fail to show up in an emergency, PJM can hit them with major fines. Those penalty powers were put in place in response to the 2014 polar vortex; this was the first time they were tested in scale.

PJM fined hundreds of power sources after December’s storm, with many penalties in the $20 million to $50 million range, according to Moody’s Investors Service. Unfortunately, those well-intentioned fees proved to be a “failed experiment,” said Potomac Economics, the independent market monitor for PJM. The fines forced some companies into bankruptcy, threatening to make the grid less reliable long term. Lincoln Power, for instance, filed in March after being fined $38.9 million. Meanwhile, any operators that provided more power than required during the storm will receive a portion of the fines as a bonus payment — even if some of their other plants underperformed.

One of the plants hit with a fine was Lackawanna Energy Center in northeastern Pennsylvania, people familiar with the plant’s performance who wasn’t authorized to speak publicly said. Located about a 20-minute drive from President Joe Biden’s hometown of Scranton, it’s one of the country’s newest, most efficient plants sitting on top of the largest US shale deposit and between two major pipelines — and it still had problems. The people said frozen equipment was to blame. After power slipped to zero during the emergency, Lackawanna was slammed with a more than $50 million fee, though all but $2 million of that was covered by insurance, people familiar said. Operator Invenergy and backer BlackRock Inc. declined to comment.

A person walks down Pennsylvania Avenue, in Washington, DC, in the morning during the bitterly cold weather on Dec. 24, 2022
A person walks down Pennsylvania Avenue, in Washington, DC, in the morning during the bitterly cold weather on Dec. 24, 2022 Photographer: Robb Hill The Washington Post/Getty Images

“It’s hard to keep the lights on with just a financial incentive in the background,” said Howard Gugel, NERC’s vice president of compliance assurance and registration. PJM is expected to issue its full report on the grid’s December performance in July.

Despite the criticisms, PJM asserts the system largely worked: Even though some plants failed to show up, the incentives still spurred many generators to find ways to get online on Dec. 24, PJM’s CEO Manu Asthana said at a June 15 FERC meeting. PJM is also working with generators to avoid more bankruptcies, securing FERC approval to allow fines to be paid back over nine months instead of three. In the months since the storm, the grid has proposed making fixes to its capacity market so it can keep rewarding plants for their ability to be live 24/7. Other ideas could include inspecting power plants like some other grids do, putting in place firmer winterization standards and trying to better understand what resources are going to show up at different times, its CEO said.

“Our members have rolled up their sleeves in the stakeholder process to work on solutions to improve performance for generators across the board, including issues such as capacity accreditation and gas-electric coordination,” PJM’s Buehler said.

The grid’s market monitor wants even more change. It has proposed requiring every plant either keep backup fuel on site, have the ability to burn an alternate fuel or have access to more than one pipeline. Those ideas were all on the table after the 2014 polar vortex but didn’t make it through the final reforms passed the next year.

PJM isn’t convinced that’s the ticket. Most generator issues during December were “not caused by fuel issues, so fuel-related solutions — while important — are a relatively small part of the picture,” PJM’s Buehler said. “It is also important to note that our region experienced an unprecedented almost 30% loss of gas supply in the Marcellus and Utica regions between Dec. 23 and Dec. 25, so solutions to fuel supply will likely need to extend upstream into the gas production and processing areas.”

Other industry players say the solution needs to be at the federal level. They want the government to set up the equivalent of a NERC oversight body for natural gas, which would help mandate standards for big grids that span state lines. Others say grids simply need more excess generation.

“What many power markets are falling prey to is that they don’t have nearly as much buffer as they did,” API’s Meyer said. “When you get these peak demand periods, the grid is put in a position where pretty much everything has to go exactly right and if it doesn’t, you are going to have problems.”

Whatever the resolution, if natural gas is going to keep playing a major role during the energy transition, critics say these issues have to be addressed.

For now, though, one of the main ways America’s various grids manage to stay afloat on freezing or scorching days is to ask homes and businesses to voluntarily unplug electric cars or tweak their thermostats, a temporary and unreliable solution to a worsening issue.

“The problem is when it’s really cold, people die; that’s just unacceptable,” NERC’s Robb said. “We have to figure this out.”

(Disclaimer: Michael Bloomberg, the founder and majority owner of Bloomberg LP — the parent company of Bloomberg News — committed $500 million to Beyond Carbon, a campaign aimed at closing the remaining coal-fired power plants in the US by 2030 and halting the development of new natural gas-fired plants.)