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Redundant Fuel Source and Supply Provides NDES Customers Significant Financial and Service Security Benefits

3/27/2021

Redundant Fuel Source

The Nashville District Energy System uses natural gas as a primary fuel source for steam generation. NDES maintains an interruptible natural gas service agreement which means that in high demand periods for natural gas energy, NDES can be curtailed on its consumption by the natural gas distributor in Nashville. Commercial natural gas service is available under both interruptible and firm service agreements with the firm service costing significantly more per unit of gas consumed.

NDES is able to operate this way because it maintains a back-up supply of propane which is used in the event of natural gas service curtailment or interruption. The back-up propane system allows NDES to continue providing service to its customers with no interruption in their service.

Propane is purchased by NDES in sufficient volumes to ensure good economies of scale, and purchases are negotiated on the open market in late summer when prices are historically at their lowest point in the year. The propane is stored for one seasonal cycle for use during the winter months when demand and price are both higher. The majority of storage is off-site with sufficient on-site capacity to make the transition to using the secondary fuel seamless.

The benefit of this operating model is two-fold: customers have a sufficient supply of back-up fuel to ensure reliable service, and interruptible natural gas service with well-managed propane purchasing affords significant cost savings to NDES customers. NDES pays less than half the rate for natural gas delivered compared to many stand-alone, non-interruptible commercial customers.

Middle Tennessee gas suppliers maintain an excellent distribution infrastructure to supply the natural gas needs of customers. As a result, NDES has not seen its gas service interrupted very often, nevertheless interruptions may occur in the future. Even though Nashville, like much of the south and southeast, faced some very frigid temperatures for several days running this past winter, there were no interruptions in natural gas supply.

The last time natural gas was curtailed was for two days in January 2015 and two days in February 2015. Curtailments have all been managed without any interruption to customers and propane was used to replace the unavailable natural gas. The Annual reports show the amounts of propane that were consumed in any given year and in which months.

This year, the propane was purchased at a seasonally low price. The surplus propane has been purchased back by the supplier at a net profit to the NDES customers.

Addendum

Now that some weeks have passed since the mid-February 2021 severe cold that blanketed much of the U.S., the International District Energy Association (IDEA) asked its members to share experiences relating to natural gas fuel supply needs and costs during this period. From Illinois to Texas, customers with firm natural gas service reported their fuel needs exceeding nomination or requested amounts subjected them to spot market pricing for the additional needed gas.

During mid-February, spot market pricing for natural gas which was typically $3 mmbtu was reported as high as $400 mmbtu and averaged around $150 to $200 mmbtu over the week to ten-day coldest period. One institutional system in Texas reported a shocking surge in fuel costs of $2.5 million just to meet demand during this period! Systems with back-up or alternate fuel options fared much better financially during this period by being able to switch over to stored alternate fuels including propane or coal which had been contracted in advance to cover these types of market demand periods.

For more information about this topic or other NDES questions, contact Dan Coyle at 615-264-2611.