Carbon-free resources are now cost competitive with new natural gas plants, according to a pair of reports released Monday by the Rocky Mountain Institute.
Wind, solar and storage projects, combined with demand-side management, have reached a “tipping point,” one report finds, meaning they’re now able to compete alongside natural gas on price while providing the same reliability services. But unlike the fluctuating price of fuels, these technologies’ prices are expected to continue dropping, the reports’ authors told Utility Dive.
This reality could leave many natural gas investors and utilities with stranded infrastructure assets, the second RMI report finds, and new gas investments should be made with caution.
Renewables threaten to undercut gas
In the past decade, low natural gas prices have undercut coal costs, leading to a boom in natural gas buildouts in the electric sector and leaving some utilities with stranded coal assets. Some companies, such as Duke Energy, are running their coal plants less and less and planning to instead build out natural gas infrastructure over the next decade or longer in order to meet peak capacity demand and some baseload generation.
But RMI’s research said natural gas investments may not be prudent 10 years down the line.
“I don’t think there’s a credible story that [the price of] gas is going to go down,” Mark Dyson, electricity principal at RMI and author on both reports, told Utility Dive. “And it’s not clear that it’s going to go up either, but even with it at its current prices, renewables are starting to undercut it … So, we do see this risk of … uneconomic assets, gas plants that won’t be used, because they’re now out-competed by renewables.”
The price of clean energy plans is dropping quickly while natural gas costs are largely projected to stagnate.
And unlike natural gas and oil prices, which fluctuate over time, there is a less defined limit to how low prices for clean energy technologies, such as energy storage, wind and solar, can go, Charles Teplin, electricity manager at RMI and an author of the report on clean energy portfolios, told Utility Dive.
“Renewable costs are one-time purchases, and we’re just getting better and better at installing these technologies at lower and lower costs,” he said.
Clean energy portfolios, defined as an optimized combination of wind, solar, storage and demand-side management, are cheaper than 90% of the 88 gas-fired projects proposed across the U.S., according to RMI, which could save customers an estimated $29 billion and reduce carbon emissions 100 million tons per year if they replaced those proposed gas projects.
Gas’s role in a clean energy future
However, the report authors say gas can still play a role in a clean energy future.
“What we did not do and what we do not pretend to do is say that in a future with a very high share of renewables, like one that most of the industry sees us getting to in the next 20 years, we don’t say that we don’t need any gas full-stop,” said Dyson.
Some utilities that have not moved entirely away from natural gas, but rather have “minimized it or utilized existing assets better” include Xcel Colorado and Pacificorp, he said.
“A lot of those are not ‘no gas at all’, but their gas [is used] at very low capacity factors as backup,” said Dyson. “And that’s the kind of plant in our analysis that actually comes out looking best versus the combined cycles that might be run more as a coal replacement.”
And some gas infrastructure could potentially be repurposed, said other analysts, noting that stranded assets are always a risk for the industry as technologies evolve and improve, making other assets quickly become out of date.
As renewables and storage prices undercut natural gas prices, the number of stranded costs related to natural gas buildouts is expected to rise quickly.
“We already see that combined cycle units built 10 to 20 years ago have a hard time competing with the combined cycle technologies that are getting built now,” Brattle Group Principal Johannes Pfeifenberger told Utility Dive.
“Wind plants that were built 10 years ago have a hard time competing with new technology and many times it’s cost effective to replace them with newer technologies … So I do think that everybody investing in any kind of technology today has to consider how technology will change over time, how customer preferences will change over time, and make investments with our eyes wide open,” he said.
And some gas infrastructure could play a role even in a carbon-free future, he said, even as the fuel itself moves beyond its use as a “back fill function.”
On gas pipelines, Pfeifenberger said, “ultimately, there has also been discussion that these pipelines wouldn’t necessarily need to transport natural gas. They could be transporting biogas, could be converted to be able to transport hydrogen,” he noted.
“Going from 80% [renewables], getting actually to 100% will require a lot of innovation and new approaches. And I have the sense that some of that infrastructure could be very valuable for addressing [that] last 20%.”
So, should we build pipelines?
Electricity has been the single largest cause of the natural gas boom in the United States in recent years, with the fuel’s use in the power sector increasing 160% in the past two decades. Some 90% of that growth has been driven by gas-fired power plants and it is projected $90 billion more will be invested in the sector, alongside $30 billion for pipeline transmission, according to one of the reports.
“Because of the rush to gas that we’ve seen in the U.S. power sector over the past 10 years, the only source of growth for natural gas consumption in the United States has been in electric power, and that has contributed to the buildout of additional interstate pipeline capacity,” Dyson said.
But because of the projected slowdown in demand for natural gas, the economics of pipeline buildouts “should be troubling for pipeline investors,” he said.
“Just as the falling gas prices have undercut coal plant operating costs,” if all proposed gas plants are built, 70% of those investments will be rendered uneconomic by 2035, according to the report.
This presents a new argument for how federal regulators should approach pipeline approvals, Gillian Giannetti, attorney at the Natural Resources Defense Counsel’s Sustainable FERC Project, told Utility Dive.
FERC approves pipelines based largely on public convenience and necessity under the Natural Gas Act, she said. But the report “really brings into focus the question of need, if need is to build a pipeline to serve a power plant that will be an uneconomic solution basically as soon as it’s finished,” she said.
A broader overhaul
Clean energy advocates have long called for a reexamination of wholesale markets to allow clean energy technologies to compete more evenly with other resources to meet resource adequacy needs. Some 60% of proposed gas projects exist in the ISO-NE and Electric Reliability Council of Texas markets and the report lays out a number of recommendations for both vertically integrated and wholesale markets.
“Market rules’ participation models were designed for an era in which thermal plants competed mostly with each other,” said Dyson. “… I think the point that we wanted to raise in publishing this report is it’s now time to carefully examine whether that process of change should be accelerated to reflect more accurately the economics and capabilities of nontraditional resources.”
The report says federal policies such as FERC’s Order 841, which will devise new tariffs for energy storage technologies, could be a framework for other federal policies that could give clean energy technologies a more even playing field.
Proposed combustion turbine and combined cycle natural gas projects across the country.
The report also recommends utilities in more integrated markets, such as the Midcontinent ISO and Southwest Power Pool engage in all-source bidding, where resources are valued by their grid services and a competitive process finds the lowest-priced energy technologies. Utilities such as the Northern Indiana Public Service Company and Xcel Energy have both found cheaper alternatives to fossil fuels in that way, the report noted.
“One notable thing that we’re seeing is [that] most of the examples of clean energy development that we highlighted in our paper are coming from vertically integrated utilities outside of [the ISO-NE and ERCOT] regions, which is kind of an interesting dynamic,” said Teplin.
