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Natural gas has long had a captive market in Florida's power
sector - marked by dependence on a handful of highly utilized
pipeline systems running near capacity to serve the state's growing
base of gas-fired power plants (see Figure 1). But a seismic push
from the state's main utilities to decarbonize and expand renewable
fuels will test the entrenchment of gas in the power generation
mix.
Figure 1
Florida already has about 5 GW of operating solar photovoltaic
(PV) capacity between behind-the-meter (distributed generation) and
grid-facing assets, capping off four years of rapid solar expansion
driven by improved panel performance, significant cost declines and
the national Investment Tax Credit (ITC) available to residential,
commercial, and utility solar energy developers.
In the absence of a binding state renewable portfolio standard
or a renewable target, large Florida investor-owned power utilities
(IOUs) Florida Power and Light (FPL) and Duke Energy Florida (DEF),
whose service territories encompass much of the state, have been
constructing many large solar farms. Those farms have increasingly
qualified as the least costly resource option for new generation
capacity. These efforts have recently been accelerated by the
companies' enhanced decarbonization ambitions set by their
corporate parents. Even with the ITC declining to 10% for solar
projects completed after 2023 based on the current legislation, IHS
Markit projects that the solar build-out in the Florida Reliability
Coordinating Council (FRCC) will continue at a brisk pace.
Eventually, FRCC's power generation mix will be almost evenly split
between natural gas and renewables, with nuclear and batteries
playing important supplementary roles (see Figure 2).
Figure 2
Despite the massive projected renewable penetration in Florida,
natural gas is well matched against solar PV in the battle for the
power market. FRCC net on-grid electricity demand growth should
remain fairly robust through 2050 with a compound average growth
rate that's slightly higher than the US lower-48 average on a
strong economic outlook and rising population. Rising solar power
generation will slowly challenge natural gas' market share as solar
output displaces some gas generation in the midday hours. However,
there will remain a need for some alternative source of generation
when solar output is limited or nonexistent, particularly in winter
mornings and summer evenings. Absent a massive deployment of (still
costly) utility-scale integrated battery storage, gas-fired
generation will fill that role.
FRCC will also eventually retire the remaining coal-fired power
plants by the late 2030s, amounting to about 6 GW of capacity.
Utilities will seek to procure at least some firm and readily
dispatchable gas-fired resources to replace these assets too.
Given Florida's projected demand trajectory, IHS Markit does not
anticipate that major additional inbound pipeline capacity will be
needed. Regulatory and environmental hurdles to costly greenfield
construction could be high, while brownfield expansions along
existing corridors will be more feasible. Three small initiatives
with in-service dates slated for 2022-23 are already advancing
through the FERC approval process and are expected to come online,
only one of which expands inbound interstate capacity.
When Sabal Trail Phase 3 comes online in summer 2021, Florida's
aggregate inbound pipeline capacity will reach approximately 6.5
Bcf/d, nearly a 60% increase from 2010 levels. Sabal Trail Phase 1
started in July 2017 with 0.8 Bcf/d of capacity. Phase 2 began in
May 2020, increasing throughput capability to just over 1.0 Bcf/d
via compression upgrades, and Phase 3 is on track to add another 76
MMcf/d by May 2021. Monthly inflows peaked at 5.1 Bcf/d in August
2020, suggesting that some headroom for flow growth is generally
available, absent localized pipeline constraints and service area
limitations.
Suzanne Edwards, senior research analyst with the
Climate and Sustainability team at IHS Markit, focuses on regional
natural gas supply and demand fundamentals, analyzes transportation
infrastructure, storage, and the outlook for gas
prices.
Nikolay Filchev, an associate director in the Global Gas
team at IHS Markit, is an expert in North American natural gas
markets with a focus on regional dynamics and exports.
Figure 1
Figure 2
