The Transitioning Role of Natural Gas

The U.S. grid is evolving — fast. One of the more interesting shifts buried in the latest U.S. Energy Information Administration’s June 2025 Short-Term Energy Outlook is how natural gas is increasingly playing the role of a balancing fuel, rather than a traditional baseload or pure peaking resource. At first glance, this may sound subtle. But the operational and market implications are significant.

The Old Model

For the last decade, natural gas — particularly combined-cycle gas turbines (CCGTs) — often acted as baseload generation in many parts of the country. Gas-fired plants ran continuously, supplying the bulk of power needs, while also supporting peak demand during hot weather (via duct firing).

What’s Changing

In the new grid mix:

• Solar is growing rapidly — U.S. solar generation is forecast to increase 33% this summer compared to last year.

• Hydropower is rebounding due to improved water conditions.

• Wind continues to expand, particularly in regions like Texas and the Midwest.

• Nuclear remains steady.

As a result, more and more electricity demand is being met by variable or low-marginal-cost resources — especially during midday hours. What’s left is net demand — the portion of demand not already served by renewables or nuclear. This is where natural gas is increasingly being dispatched.

From Baseload to Flexible Balancer

Natural gas-fired plants are now called upon to:

• Ramp up quickly in the morning as solar output lags behind rising demand

• Ramp down during peak solar output in the afternoon.

• Ramp back up in the evening as solar drops and demand persists ("duck curve").

• Meet peak loads during extreme heat when renewables and baseload aren’t sufficient.

In short, natural gas is becoming the grid’s flexible workhorse — filling in around the variability of renewables.

Price Setter — But More Variable

It’s important to note that natural gas often still sets the marginal price of electricity in many hours, because its cost to produce is higher than renewables or nuclear. But its operational role is shifting:

• It is cycling more frequently.

• Capacity factors are declining.

• Gas is running fewer flat 24/7 schedules and more variable, net-demand-following profiles.

In the EIA’s latest outlook, natural gas generation is forecast to decline 3% this summer vs last year, despite rising total electricity demand — simply because more solar and hydro are displacing it during key hours.

The Big Picture

This transition has important implications:

• Grid operations need to be more flexible — gas plants must be optimized for frequent starts and stops.

• Market design will need to reflect the value of flexible balancing services, not just energy volume.

• Investors and developers must adapt to gas plants operating with more variable revenue profiles.

Natural gas won't be going away anytime soon. But it is evolving from being the constant backbone of the grid to the balancer that ensures reliability amid growing renewable penetration.

As this shift accelerates, understanding the nuances of this changing role will be key for utilities, developers, investors, and policymakers alike.

Three Ways Power Market Design Will Need to Evolve

A. Ancillary services market expansion

• Today’s ancillary services (frequency regulation, spinning reserves, voltage support) markets are often too narrow or too shallow.

  
  

• Expanded ancillary services markets will be needed:

  • Faster ramping products.

  • "Flexibility products" (resources paid for being able to follow net load quickly).

  • Pay for inertia / fast frequency response (especially as conventional inertia declines with coal retirements and more inverter-based renewables).

  • Example: CAISO has created Fast Frequency Response products, and PJM is exploring similar.

    
    

B. Resource adequacy planning

• Planners need to ensure the grid has enough flexible MW, not just enough total MW.

• Planning metrics may need to shift from traditional peak load coverage to metrics like:

  • Ability to cover multi-hour ramps.

  • Availability during low-renewable periods (seasonal and diurnal).

  • Fast start capability.

    
    

C. Energy market reforms

• Scarcity pricing (paying very high prices during tight net demand hours) needs to be calibrated to reflect not just gross demand but net demand (load minus renewables).

• Energy market price formation needs to reflect the value of fast response, not just marginal fuel cost.

• This helps gas plants that cycle frequently or hold reserves to be compensated fairly.

  • Example: ERCOT’s ORDC (Operating Reserve Demand Curve) is an example of trying to value scarcity appropriately.