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Opportunities Synergy Natural Gas and Renewable Energy

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capacity expansions needed to maintain service reliability. This has largely been the result of regulatory requirements on cost recovery that were developed for the prior industry paradigm of LDCs as the primary type of gas customer.91 Therefore, new regulatory frameworks and methods of contracting and initiating pipeline expansion projects may need to be developed. Additionally, fair and reasonable allocation of 92 infrastructure expansion costs across pipeline customer groups needs to be determined. 4. Valuation of flexibility. The economic value of generator flexibility in existing electricity markets has largely derived from the ability of these generators to meet historical needs for flexibility, primarily to cover fairly predictable daily load profiles and contingency events and meet system reliability standards. The ability of existing generators to provide the flexibility required by variable renewable generation is inadequately valued by current market structures and products. For example, natural gas combined cycle (CC) and combustion turbine (CT) plants provide varying degrees of ramping flexibility to accommodate fluctuations in net load,93 and both are more flexible with lower cycling costs than coal plants.94 Several arenas in which this type of flexibility could be more explicitly valued include: ancillary service markets with the creation of a 95 x new category of “flexibility” reserves, newly developing regional capacity markets whose aims are to incentivize new capacity to meet future demand,96 reliability planning modelstodifferentiatethecapabilitiesofexistingflexibleandinflexibleresources, and the ongoing endeavor to accurately value energy storage technologies.97 5. Electricity dispatch timing. Regional electricity markets with hourly dispatch schedules are unable to utilize lower-cost flexible generators within each hour to meet large but relatively slow ramping needs arising from fluctuations in variable generation.98 Instead, all within-hour ramping is met primarily by expensive regulation reserves, which were meant to stabilize much smaller rapid fluctuations in generation and frequency. This results in inefficiently higher integration costs. Sub-hourly (5- to 15-minute) economic dispatch has been shown to allow existing lower-cost resources to meet a greater portion of the ramping needs caused by variay bzle generation, minimizing the use of expensive regulation reserves for that purpose. Regions that currently use hourly dispatch schedules, such as the Western region (excluding California) and Southeast region of the United States, can improve their ability to cost-effectively integrate variable generation by moving toward faster dispatch schedules. x For example, the flexibility of natural gas capacity compared to coal or nuclear capacity is not reflected in energy reliability models used by the Midwest Independent System Operator (MISO) [Technical Conference on Coordination between Natural Gas and Electricity Markets for the Central Region; August 6, 2012, St. Louis, Missouri. Federal Energy Regulatory Commission (FERC)]. y Analysis of sub-hourly market data has shown that price signals from sub-hourly electricity markets provide generation to meet sub-hourly fluctuation at little to no extra cost compared to hourly prices. While sub-hourly prices may fluctuate greatly, on average the price is very close to the hourly energy price. This analysis suggests that this type of load-following generation response can be acquired at little cost using existing resources (Milligan, M.; Kirby, B.; Beuning, S. Potential Reductions in Variability with Alternative Approaches to Balancing Area Cooperation with High Penetrations of Variable Generation. NREL/MP-550-48427. Golden, CO: National Renewable Energy Laboratory, 2010; 78 pp.). z For an analysis of the operational feasibility of integrating 35% wind and solar in the Western region, see NREL. (2012). Western Wind and Solar Integration Study. NREL/SR-550-47434. Work performed by GE Energy, Schenectady, NY. Golden, CO: National Renewable Energy Laboratory. 25

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