National Grid warns of permitting risks to meet growing gas demand

National Grid warns of permitting risks to meet growing gas demand

National Grid plans to continue pursuing an expansion of a gas project in Greenpoint, Brooklyn, and more compressed natural gas injection sites to meet growing demand for natural gas downstate.

The utility released an updated report Wednesday on its plans to serve peak gas demand on the coldest winter days. The plan finds that alternatives to the solutions Grid has already focused on face even more permitting or feasibility risks.

Why it matters: The 108-page report appears partly aimed at bolstering Grid’s effort to secure permits from New York City for new liquified natural gas vaporizers at an existing Greenpoint facility. It warns of potential gas supply shortfalls in the winter of 2023-2024 if delays occur, with additional risks if energy efficiency and other efforts don’t take off as planned.

Key context: National Grid sparked widespread outrage and condemnation when the utility imposed an abrupt, poorly communicated moratorium on new gas hookups on Long Island and the parts of New York City it serves. The moratorium came after New York rejected a pipeline the utility said was essential to continue serving new customers.

A subsequent settlement with Gov. Andrew Cuomo’s administration required Grid to do something gas utilities had never done: involve and inform the public about their forecast gas demand and supply options. Grid’s plan has drawn criticism because it continues to rely on investments in gas infrastructure including the LNG vaporizers, CNG injection sites and an upstream compressor station known as the Iroquois ExC project.

Environmental advocates argue the utility should focus solely on heat pump, energy efficiency and demand side options. But Grid officials say they’ve already included ambitious ramp-ups of those programs and that more is not realistic. State regulatory staff also agreed in recent rate case comments that the utility’s proposed infrastructure projects are needed to ensure reliability.

Details: National Grid’s report finds that permitting delays and challenges in ramping up novel demand-side management programs for its selected solutions to meet demand could “create a real risk of National Grid not being able to meet future customer demand, requiring an updated assessment of potential impact and consideration of alternatives.”

The report forecasts an even higher peak demand for natural gas than in its previous reports, which will likely draw condemnation from environmentalists who argue more gas is not needed and runs contrary to the state’s climate law. But a proposal to ban new gas hookups has not gained traction in New York City and is rarely discussed at the local level on Long Island.

The utility cites an expected strong economic rebound after the pandemic driving the higher forecast. If gas demand begins to decline, with policies such as prohibitions on new hookups or gas appliance replacements, Grid’s report highlights that CNG efforts and peak supply contracts can be scaled down.

Infrastructure alternatives: The report revisits some alternative solutions and offers one new option but concludes that those face similar or even greater permitting risks.

“We should essentially stay the course,” said Steve Caldwell, the utility’s vice president for the future of heat. “Any of the alternative approaches … would entail risks that we couldn’t fully bridge supply and demand.”

The only new option outlined is a micro LNG tank of less than 70,000 gallons to provide a small amount of peak day support. Such a project would face community opposition and require state and local permits, the report notes. Caldwell said it’s not a great fallback option if the large-scale LNG project or Iroquois compression are rejected.

The utility plans to issue solicitations to the market for demand and supply side solutions following approval of a proposed rate hike, which could uncover other alternatives. “We continue to look for whatever is out there,” Caldwell said.

Grid did increase its reliance on new compressed natural gas injections into the pipeline system, with a new facility currently under development to meet an additional 18 MDth per day of demand. CNG involves bringing gas in by truck. Permitting and siting risks exist for this project given the limited availability of land in downstate New York near the constrained areas of the gas system, according to the report.

Current pathway: Meeting forecast demand in the near term relies primarily on the LNG vaporization project in Brooklyn. Tanks store the gas in liquid form at low temperatures and vaporizers heat it to inject into the pipeline system.

Located at an existing Grid facility, the addition of two new vaporizers requires both state and city permits. That poses a major barrier as Mayor Bill de Blasio has pledged not to permit any new gas infrastructure and it’s not clear what stance the next administration will take.

Local communities have also organized against the project. The two additional vaporizers would provide about 60 MDth per day of peak capacity.

Grid’s analysis sees the LNG project as the only solution that could be online in time to meet demand in the winter of 2023-2024. If permits are not received this summer, the project will not be complete until the 2024-25 heating season.

Delays in federal permitting for the Iroquois ExC imperil an additional 62.5 MDth/day of gas capacity. Grid estimates completion may not occur until 2024-25.

Demand side solutions: Grid’s plan also includes a mass scale up of energy efficiency, demand response and electrification programs to limit peak day demand. The utility found no other company planning to scale up these programs at such a level in such a short timeframe.

“The size of the demand-supply gap, driven by robust demand growth … is too big a gap to bridge simply with demand destruction,” Caldwell said. Expecting any more from those programs than Grid has already proposed is not feasible, he said.

Those demand side solutions are expected to offset nearly all demand growth after the mid-2020s, he said.

The new report provides additional detail in the new programs Grid is working to roll out. They include two new weatherization incentive programs for gas customers set to launch this fall. In 2022, programs to incentivize small business and multifamily weatherization are planned. New customers will also be allowed to access energy efficiency incentives.

Risks to energy efficiency include a lack of available contractors and vendors, potential inability of customers to afford up-front weatherization costs, increased building material costs, delays to regulatory approvals and a risk that utilities won’t be allowed to incentivize highly efficient gas appliance replacements.

Demand response programs to get customers to switch to fuel oil on extremely cold days are also a focus. Risks include getting enough customers to enroll and retaining them every year.

Electrification efforts are part of the portfolio primarily after 2025 when customers switching to electric grow from about 2,300 per year to 24,400 per year by 2031.

“The scale of electrification required is driven by the high costs of customer and building conversions, but it is not yet clear if all funding sources and partners to achieve these levels of electrification will be available,” the report states.

Contingency scenarios: Delay or rejection of either the LNG vaporizers or the Iroquois project pose risks of a supply-demand gap, according to the report. Failure to achieve demand side targets is also a risk.

If both the LNG and pipeline compression project are rejected, relying solely on non-infrastructure demand response and electrification would cost about $1.2 billion and increase customer bills 10 percent on average over the next five years, according to the report. Including alternative distributed infrastructure projects such as an additional distribution pipeline or LNG barges would be more affordable.

But the report concludes those projects face high permitting risks are similarly high. The risks of a moratorium on new connections are “substantial,” Grid concludes. And even if new connections are stopped there’s still a chance the utility would have to activate curtailments of existing customers.

The first step is a request for customers to voluntarily reduce loads, then involuntary shutoffs for large non-essential customers and finally shutting down portions of the gas system. This plan was first introduced in late 2019.

“If you’re exercising that customer curtailment plan … you’re doing it on an extremely cold day,” Caldwell said.

The specter of such actions — particularly the risk of large parts of the system being shut off to prevent pressure loss — is a major focus of Department of Public Service staff in Grid’s ongoing rate case. That reliability risk justifies investments in the infrastructure solutions proposed by the utility, DPS staff have written in comments supporting a joint proposal pending before the PSC.

What’s next: A virtual public meeting on Grid’s latest report is scheduled for July 14. A decision on Grid’s pending rate hike that includes an approval process for rate recovery of its projects to meet peak demand is expected from the PSC in August.

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