Power producers are rushing to build natural gas plants and pipelines to replace retiring coal, but in less than 10 years much of that infrastructure will be more expensive to operate than the cost to build new renewables, according to an analysis released today by the Rocky Mountain Institute.
That would leave investors and ratepayers saddled with billions in stranded assets.
“The same technological innovations and price declines in renewable energy that have already contributed to early coal-plant retirement are now threatening to strand investments in natural gas,” according to the report written by Mark Dyson, a principal in the think tank’s electricity practice. Alexander Engel and Jamil Farbes also contributed to the study.
Utilities and independent-power-plant developers have already announced plans to invest more than $110 billion in new gas-fired power plants through 2025. The U.S. Energy Information Administration reported Friday on a massive buildout of natural-gas pipelines in the Northeast.
The RMI study extrapolates this trend to 2030 and finds that $520 billion will be required to replace all retiring power plants with new natural-gas plants. “This will lock in another $480 billion in fuel costs and 5 billion tons of CO2 emissions through 2030, and up to 16 billion tons through 2050,” the authors write.
By 2026 it will be cheaper to build new renewable portfolios than to operate these young gas plants, the study finds, leaving the gas plants economically stranded.
To test whether up to $1 trillion in gas investments are threatened by renewables, the authors examined four of the announced plants: two combined cycle gas turbines proposed for the West Coast and Florida, two combustion-turbine peaker plants proposed for Texas and the South Atlantic. They compared the cost of those plants to portfolios of wind, solar and battery storage optimized for each region.
“In only one case did we find that the net cost of the optimized clean energy portfolio is slightly (~6%) greater than the proposed power plant,” they write. “In the other three cases, an optimized clean energy portfolio would cost 5–60% less than the announced power plant.”
Those results get more dramatic if renewables continue to drop in cost, as they are expected to do. Taking that into account:
“All four cases show that an optimized clean energy portfolio is more cost-effective and lower in risk than the proposed gas plant.”
The authors reach the same outcome when they factor in a very modest price on coal emissions of $7.50 per ton (modest because the U.S. government has calculated the social cost of carbon emissions to be about $40 per ton).
“Our analysis reveals that across a wide range of case studies, regionally specific clean energy portfolios already outcompete proposed gas-fired generators, and/or threaten to erode their revenue within the next 10 years. Thus, the $112 billion of gas-fired power plants currently proposed or under construction, along with $32 billion of proposed gas pipelines to serve these power plants, are already at risk of becoming stranded assets. This has significant implications for investors in gas projects (both utilities and independent power producers) as well as regulators responsible for approving investment in vertically integrated territories.”
The authors alert ratepayers who may be saddled with the cost of stranded assets, and they urge gas-plant investors and regulators to reconsider the planned natural gas plants and pipelines.