Gas and Renewables in the Future Electricity Mix

Policy targets on complete decarbonization of the electricity sector have significant implications for the role of gas in the future electricity mix. Historical data from Europe shows that renewables have increased most rapidly within electricity in those countries which had the highest ability to integrate them, primarily through the presence of fossil fuel backup. However, the rapid penetration of renewables has also changed the way that gas is being used in the electricity mix – while in the past, CCGTs were traditionally run on baseload power, they are now required increasingly to provide backup for variable renewable resources. Consequently, gas generators are changing their plants to provide more ‘flexible’ generation – the ability to ramp up and down quickly, fast start-up/shutdown and turndown to low output levels. New projects involve smaller and more ‘flexible’ plants, and generators will need to find new business models to take this changing environment into account.

However, future electricity markets are likely to be radically different to what has existed before, driven primarily by government policy targets on decarbonisation. The electricity sector is turning ‘upside-down’, with future markets likely to be based on matching demand with supply, and not on traditional models which matched supply with demand. In this new electricity environment, gas will face competition in the market for ‘flexibility’ from a variety of alternative resources, including most importantly storage, EVs, and demand-side response. Accordingly, the competitiveness of gas vis-à-vis these alternative resources will be determined in individual countries by factors including the design of the electricity market, availability of alternative resources, and government policies.

This research has three objectives: first, to trace the historical evolution of renewables in the electricity mix of selected European countries; second, to propose a framework to determine the role of gas (including decarbonised gas) in a future electricity market; and third, to investigate the implications of this framework in selected countries, including in Europe, for the gas and electricity mix, gas demand and potentially, for industry business models.

By: Anouk Honoré , Anupama Sen