Natural Gas Reliability Michael Hainzl Power Solutions Manager, Generac Power Systems. Date: 20 September 2017

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Natural Gas Reliability By: Michael Hainzl Power Solutions Manager, Generac Power Systems Date: 20 September 2017

Overview Environmental Regulations, Emissions Ultra Low Sulfur Diesel (ULSD) Engine Technology Changes in Oil Refining Processes Fuel Supply, Availability at the Generator Initial Cost, Diesel vs. Natural Gas Operational Cost, Diesel vs. Natural Gas On-Site Natural Gas Storage Technology 2

Ultra Low Sulfur Diesel (ULSD) Low sulfur diesel 500 ppm required in 2007 for non-road applications EPA mandated ULSD in 2010, <15 ppm for non-road applications Prerequisite for on-engine emission controls; DPF and SCR 3

Ultra Low Sulfur Diesel (ULSD) Reduced lubricity, especially at elevated temperatures Less resistant to microbial growth Shorter shelf life Energy content reduced ~1-3% 4

Engine Technology Driven by tighter emissions requirements Higher fuel injection pressure; common rail, piezoelectric Electronic engine management 5

Engine Technology Exhaust Gas Recirculation (EGR), on Tier III engines Diesel Particulate Filters (DPF), some non-emergency (NYC) Selective Catalytic Reduction (SCR), all non-emergency 6

Changes in Oil Refining Processes More efficient refining techniques Higher yield per barrel Less control of product through production and distribution 7

Changes in Oil Refining Processes Catalytic cracking improves per barrel yield. Lighter fractions created (jet fuel and diesel) are less stable than traditional distillation products, but very low in sulfur content. 8

Consequences for the End User Emergency Power System reliability will suffer if fuel is not properly maintained. Potential false sense of security with on-site fuel supply. Using natural gas for emergency power generation mitigates diesel fuel delivery and maintenance risks. 9

Natural Gas Infrastructure

Natural Gas Infrastructure Two recent studies on natural gas infrastructure reliability: MIT Lincoln Laboratory, May 2013: Interdependence of the Electricity Generation System and the Natural Gas System and Implications for Energy Security U.S. Department of Energy, April 2013: Comparing the Impacts of Northeast Hurricanes on Energy Infrastructure 11

Natural Gas Infrastructure Highly distributed supply Networked transmission 12

Natural Gas Facilities 13

Natural Gas Transmission 14

Natural Gas Infrastructure No single point of failure on transmission Transmission pipeline volume represents significant high-pressure storage reserve Four trillion cubic feet of storage Compressor stations often self-powered Very low probability of cascading failure modes Distribution generally not dependent on electricity If all production nationwide ceased, gas from storage would flow for two weeks to three months 15

Natural Gas Storage Capacity 16

Hurricanes Irene and Sandy Two major events to assess critical infrastructure resiliency along the East Coast Abundant data available from utilities and government for study 17

Electrical Infrastructure Damage 18

Power Restoration Time 19

Fuel Shortages How bad was it during Sandy? EPA waived reformulated gasoline in 10 states EPA waived ULSD requirements EPA waived vapor recovery on fuel transfers DOT waived FMCSA hours of service limits, driver qualification and maintenance requirements Jones Act waiver to allow foreign vessels into NYC ports carrying petroleum products, 2.7 million bbl. 20

Petroleum and Natural Gas Text 21

Natural Gas Distribution Several compressor stations lost power, but all gas transmission mains remain in service Spectra Energy lost power and communication to most SCADA nodes, but gas kept flowing 1,700 customers proactively shut down due to severe flooding in NY and PA After landfall, NJ Natural Gas shut down about 32,000 customers along the coast (Long Beach Island) In retrospect, the shutdown caused more damage than it prevented 22

Natural Gas Reliability Natural gas is 99.999% reliable according to MIT paper Commercial power reliability varies based on location, but assume it s only 99% reliable. What is the probability of a concurrent failure? With five nines on the natural gas supply, availability of natural gas supply or commercial power is virtually assured. 23

Natural Gas Reliability What if natural gas supply (NG) is only 99.9% reliable? (8.76 outage hr./yr.) Assume commercial power (CP) is 99% reliable (87.6 outage hr./yr., 3.65 days) http://reliabilityanalyticstoolkit.appspot.com/ 24

Natural Gas Reliability Recap Distributed production infrastructure Distributed transmission infrastructure Highly reliable during extreme weather events Not subject to transportation and delivery risks like diesel No fuel maintenance required to preserve fuel quality Very low probability of concurrent electric and natural gas infrastructure failure; if one or the other is available the power stays on! 25

Cost of Ownership

Initial Capital Cost $800 Generator Cost per kw - Installed $700 $600 $500 $400 $300 $200 $100 $- 25 kw 50 kw 100 kw 150 kw 200 kw 250 kw 300 kw 350 kw 400 kw 500 kw 600 kw 750 kw 800 kw 1000 kw 1250 kw 1500 kw 2000 kw Single Engine Gas Single Engine Diesel 27

500 kw Diesel / Nat Gas Total Cost Total Cost for 25 of years Ownership, (-4% 25 inflation) yrs. Diesel Natural Gas 6% cost of capital, 2% Inflation $325,858 $337,577 Total NOx Emissions 3,725 (lb) 124 (lb) Total CO Emissions 373 (lb) 621 (lb) Total PM Emissions 106 (lb) 0 (lb) Typical Emission Output Diesel Natural Gas Generator Configuration Generator Size (kw) Fuel Cost (Diesel) Cost Items Diesel Natual Gas Diesel Generator Tank Size - (Run Capital Time (hr)) $102,875 $200,000 Generator - Installation $75,000 $85,000 Load Bank Testing Period Generator - PM (annual) $2,000 $2,000 Fuel Polishing Fuel - Initial / Maintence Tank Fill Period Fuel Polishing Fuel - Cost / Maintence (annual) Cost $5,063 $2,215 $0 $1,017 Fuel - Maintenance (annualized) $3,188 $0 Install & Transfer equipment cost Load Bank - (annualized) $1,750 $350 No Load "Demand operation Response" hrs/yr(annual) $0 $0 With Load operation hrs/yr Operation for "demand response" programs Annual benefit for "demand response" ($/kw/yr) 28

2 x 250 kw Diesel / Nat Gas Total Cost for 25 years (-4% inflation) Diesel Natural Gas Total Cost of Ownership, 25 yrs. 6% cost of capital, 2% Inflation $342,169 $351,757 Total NOx Emissions 2,297 (lb) 62 (lb) Total CO Emissions 1,490 (lb) 310 (lb) Total PM Emissions 93 (lb) 0 (lb) Typical Emission Output Diesel Natural Gas Generator Configuration Generator Size (kw) Generator - Capital $118,271 $214,000 Cost Items Fuel Cost (Diesel) Diesel Natual Gas Diesel Generator Tank Size -(Run Installation Time (hr)) Load Bank Generator Testing - PM Period (annual) $75,000 $2,000 $85,000 $2,000 Fuel - Initial Tank Fill $5,115 $0 Fuel Polishing / Maintence Period Fuel - Cost (annual) $2,238 $1,029 Fuel Polishing Fuel - Maintenance / Maintence (annualized) Cost Install Load & Transfer Bank - (annualized) equipment cost "Demand Response" (annual) No Load operation hrs/yr With Load operation hrs/yr Operation for "demand response" programs Annual benefit for "demand response" ($/kw/yr) $3,220 $1,750 $0 $0 $350 $0 29

Operating Expense Recap Gas is 50%-60% less expensive than diesel per kwh produced Annual diesel fuel testing / maint. ~$1.70/gal. Technical competency of end user, diesel fuel maintenance policy Relative supply risk for diesel or natural gas Social benefit of reduced emissions using natural gas Lower cost to participate in demand response programs using natural gas 30

On Site Natural Gas Storage

NEC and NFPA s Take: NFPA 70 National Electric Code 700.12(B)(2) Internal Combustion Engines as Prime Movers: Where internal combustion engines are used as the prime mover, an on-site fuel supply shall be provided with an on-premises fuel supply sufficient for not less than two hours full-demand operation of the system. 700.12(B)(3) Dual Supplies: Prime movers shall not be solely dependent on a public utility gas system for their fuel supply or municipal water supply for their cooling systems. Exception: Where acceptable to the authority having jurisdiction, the use of other than onsite fuels shall be permitted where there is a low probability of a simultaneous failure of both the off-site fuel delivery system and power from the outside electrical utility company. Could limited on-site natural gas storage address tail risk? 32

On Site NG Storage Technology Compressed Natural Gas (CNG), for a 500kw gen 3,600-5,000 psi ~$23,000 for 2-hour cylinder ~$10,000, regulators, PRVs, etc. Diesel Base Tank $21,500 for 1,000 gallon tank $2,700 to fill 33

Adsorbed Natural Gas Adsorbed Natural Gas (ANG) 1.8x storage volume to CNG, but at only ~500 psi Technology development supported by alternative fuel vehicle market Potential for much lower cost Engineered Carbon ~160 Vd/V, 500 psi 34

ANG Storage Cylinders and Tanks Low pressure of ANG enables departure from cylinder form factor Improved utilization of irregular volume in vehicle applications High surface to volume ratio helps with thermal management Potential for significant cost reduction compared to CNG 35

Current R&D Adsorbent material properties Improved working capacity Improved thermal conductivity Physical endurance Resistance to contamination from heavier HCs and odorants Conformable Tanks Low cost composite materials High surface area to volume ratios (thermal management) Service life Compressors Reducing cost and energy use for at home fueling 36

CNG vs. ANG Economics 2-hr CNG $33,000 ~$498/CF at 3,600 psi CNG cylinder cost $90 initial fill 2-hr ANG ~$25,000 ~$150/CF at 500 psi ANG tank cost (today) Adsorbent, $1-2/lb. $90 initial fill Compared to diesel: $21,500 for 1,000 gallon UL142 base tank $2,700 for initial diesel fill (24 hour tank) 37

Michael Hainzl Power Solutions Manager (201) 481-2327 Michael.Hainzl@generac.com