By - Jim Vess

Falling renewable energy prices could make $112 billion in gas-fired generation a stranded asset, RMI study says

Energize Weekly, May 30, 2018

Coal-fired generation is being supplanted, for the most part, by cheaper natural gas turbines with $112 billion in new gas-fired power plants proposed or under construction, but those plants could face the same market fate as coal, according to an analysis by the Rocky Mountain Institute (RMI).

The analysis by RMI, an independent energy consultant, found that under current market conditions, a mix of renewable energy generation and distributed energy resources (DER) is already beating natural gas on price.

“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,” the report said.

If renewable energy prices continue to decline as they have over the last 10 years or a carbon tax of $7.50 a ton of carbon dioxide is added, the price gap between wind and solar generation and natural gas is even more pronounced.

Nearly 500 gigawatts, or about half the thermal generator fleet, is projected to be retired by 2030, prompting a need for new investment in capacity, RMI said. At the moment, a lot of that investment is going to natural gas-fired generation.

“U.S. electricity generators may be committing their customers and investors to as much as $1 trillion in future investment and fuel costs through 2030 as they rush to build new gas-fired power plants,” the RMI study said.

The study analyzed the cost of four planned natural gas-fired power plants in four regions—the West Coast, mid-Atlantic, Florida and Texas—and compared them to costs for regional renewable energy resources.

In only one case, Florida, was the natural gas plant more cost effective. In the other three cases, the optimized renewable energy portfolio was cheaper. On the West Coast, it was 8 percent less expensive, in Texas 47 percent and in the mid-Atlantic 60 percent.

“Regionally specific clean energy portfolios already outcompete proposed gas-fired generators, and/or threaten to erode their revenue within the next 10 years,” RMI said. “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.”

RMI said that about $93 billion of the new natural gas capacity is being built by merchant power generators, who are most susceptible to the pressure of market prices.

An Xcel Energy call for new project proposals for its Colorado subsidiary yielded 350 bids with the median price for wind projects at 1.8 cents a kilowatt-hour (kWh) and solar projects with a median of 2.25 cents a kWh.

The median price for the 30 combustion turbine/internal combustion engine proposals was 48 cents a kWh, but the prices for the two natural gas-fired combine-cycle turbines were not released. 

“Renewables and DERs are outcompeting and beginning to capture market share from natural gas-fired generation in many parts of the country, including both peaking capacity as well as higher-efficiency, combined-cycle plants,” RMI principal and report author Mark Dyson said in a statement. “The consequences of continuing a business-as-usual approach … promises to negatively impact customers, investors, and the environment.”

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