The need for natural gas in a transition to renewables: A case study
To meet decarbonization goals, New York (NY) and New England (NE) ISOs are starting to replace natural gas with renewable generation as a power source. From 2021 to 2040, gas generation is expected to decrease with a CAGR of 6 percent, while renewable generation grows with a 1 percent CAGR. Although gas accounted for over half of NY’s and NE’s power generation in 2021, by 2040, renewables would contribute the bulk— around 75 percent (exhibit). Despite this shift from gas to renewables and the ultimate drop in annual gas
rest of the country. This poses a challenge for natural gas providers and consumers— how best to organize and regulate access to an emergency supply of natural gas? To ensure grid reliability, access to gas will be needed. And this, in turn, will require new infrastructure to be developed (such as pipelines and gas storage). Providing— and paying for— this infrastructure requires a change in how the gas and power market currently operates; new market mechanisms will have to be introduced to allow full access to the natural gas market.
generation, demand for gas on peak days—when renewables generate below full capacity—could increase, especially in the absence of other dispatchable energy supplies that can be ramped up to meet power demand. In 2021, peak-day gas demand in NE and NY reached up to 6.6 billion cubic feet per day (bcfd) above the average annual gas demand. By 2040, peak-day demand in NE and NY could quadruple the annual demand, with an 11.5 bcfd difference. Natural gas, therefore, will remain essential to the grid in NY and NE, as in the
Exhibit In New York and New England, average gas demand will decline, and peak-day demand will increase.
NY and NE annual generation to meet decarbonization targets, terawatt-hours
2040 NY, MA, CT, and RI demand,¹ billion cubic feet per day
Power
Gas local distribution company (LDC)²
Industrial
CAGR
401
2021–2040, %
15.2
0.8
–1
55
Other
12.3
–6
42
Gas
0.7
5.9
+11.6
235
+6.6
6.4
60
5.7 0.7 2.1
1
304
Renewables
8.5
3.6 0.8
134
5.2
2.0
2.8
40
0.9
2021
2040³
2021 annual demand
2040 annual demand
2040 peak day demand
2021 peak day demand
Note: Assuming IRA and current state carbon policy. 1 Excludes Maine, New Hampshire, and Vermont. 2 Based on modeled gas LDC consumption for 2040 and the average winter peak day demand of ~3× higher. 3 Assuming a constant demand for industry. Source: ISO New England; Power forecast data; McKinsey Energy Insights; McKinsey Global Energy Perspectives
McKinsey & Company
Accelerating the journey to net zero
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