Clean Energy & DER Portfolios More Cost-Effective Than Natural Gas Replacements Worth $500 Billion

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A new report from the Rocky Mountain Institute has shown that investing in “clean energy portfolios” made up of clean energy sources and distributed energy resources is a more cost-effective method of replacing aging fossil fuel-powered power plants in America than replacing them with new gas-fired power plants.

America’s fleet of operating power plants are not only primarily made up of fossil fuel-based sources like coal and natural gas, but over half of the country’s generating capacity of power plants is more than 30 years old and will reach retirement age by 2030. As things currently stand and encouraged by advances in power plant technology and natural gas prices which have hit historic lows, the country’s developers, utilities, and merchant generators have already announced plans to invest over $110 billion in new gas-fired power plants through to 2025. According to the Rocky Mountain Institute (RMI), if this trend continues through to 2030 then over $500 billion will be necessary to replace all the aging and retiring power plants with new natural gas-fired capacity. Add on to that another $480 billion in fuel costs and 5 billion tons of carbon dioxide (CO2) emissions through to 2030 — and as much as 16 billion tons of emissions through to 2050 — and that’s nearly $1 trillion in future investments and fuel costs, and unnecessary additional CO2 emissions.

“The first “rush to gas” happened in the late 1990s and early 2000s,” explained report author Mark Dyson, from the Rocky Mountain Institute, to me via email. “It slowed down after that but has been picking back up recently, with (as we noted in our report) over 100 GW of new plants announced for construction between now and the early 2020s.”

A new analysis from researchers at RMI has concluded that a more cost-effective and environmentally friendly method of replacing retiring fossil fuel-powered power plants is to rely instead on clean energy portfolios made up of renewable energy sources like wind and solar, and distributed energy resources (DERs) such as energy storage batteries.

Relying on clean energy portfolios may have been prohibitively expensive 10 years ago, and would have relied solely on doing things for “environmentally friendly” reasons. However, over the last decade, the cost of renewable energy and DER technologies have fallen dramatically and, according to RMI, are now not only cheaper based on a levelized cost basis than proposed natural gas-fired power plants but are increasingly threatening the levelized cost of existing gas plants.

“RMI’s analysis finds that, because of recent innovation and rapid cost declines in renewable energy and DER technologies, clean energy portfolios can often be procured at significant net cost savings, with lower risk and zero carbon and air emissions, compared to building a new gas plant,” report authors Mark Dyson and Alex Engel explained in an accompanying blog post.

Beyond simply being increasingly cheaper than the natural gas alternative, clean energy portfolios are time and again proving they are able to provide the necessary grid services previously presumed to be the sole domain of fossil fuel energy sources like coal and natural gas.

“More dramatically, the new-build costs of clean energy portfolios are falling quickly, and likely to beat just the operating costs of efficient gas-fired power plants within the next two decades—a sobering risk for investors and customers in a market with over $100 billion of already announced investment in new gas-fired power plants,” Dyson and Engel went on to explain.

The authors of the report analyzed four case studies of proposed gas plants across the US and compared these proposals with the potential of clean energy portfolios. Each scenario was region-specific regarding what clean energy supplied the portfolio, and also provided the necessary grid services and system-level reliability. In all four scenarios, the researchers found that clean energy portfolios were cost-competitive with the proposed natural gas-fired power plants. Three of the four were not only cost-competitive but cost between 8% and 60% less than the proposed gas plant; the fourth was only 6% more expensive than the proposed natural gas alternative.

Net Cost of Clean Energy Portfolios across Four Case Studies, Relative to Proposed Gas-Fired Power Plants

“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,” explained Mark Dyson. “The consequences of continuing a business-as-usual approach—building new gas generation when clean energy technologies are increasingly winning the day—promises to negatively impact customers, investors, and the environment through higher energy costs, the risk of stranded assets and greater carbon and air emissions.”

However, as shown by the Florida scenario which saw a 6% increase ‌between clean energy portfolios and natural gas, the region as a whole might represent an area which is less easily shifted to clean energy.

“Our Florida case study illustrates the challenges in the Southeast of replacing “baseload” plants with clean energy portfolios, with little local wind availability,” Mark Dyson told me. “However, even in this difficult region, new gas could be outcompeted within the next 10 years, and even sooner if you take into consideration some emerging technologies (low-cost community-scale solar, offshore wind) and/or policy risks (e.g. CO2 pricing) that we excluded from our analysis.”

When expanded to the entire US market, RMI found that relying on clean energy portfolios instead of natural gas alternatives could result in savings of at least $370 billion in new gas plant investment and operating costs — savings which could be redirected towards renewable energy and DER investments.

Further, and as already mentioned, clean energy portfolios are likely to not only be competitive to proposed natural gas power plants, but RMI believes that falling renewable energy and battery storage technology costs will result in the cost of clean energy portfolios falling by around 40% over the next 20 years. Depending on what the price of natural gas does over the same time, Dyson and Engel believe that “the falling costs of clean energy portfolios will begin to outcompete just the operating costs of a highly efficient gas plant by 2026 (if gas prices rise to averages observed from 2003–2008, potentially driven by an emerging export market for liquefied natural gas) or by ~2040 (if gas prices stay at currently low levels).”

Reports such as these are often covered frenetically by journalists such as myself and published by researchers and institutions like the Rocky Mountain Institute with grand hopes, but whether or not they reach policymakers and developers is another question entirely. I asked Mark Dyson what he would tell energy utilities and developers in the US who saw this report:

“Consider carefully any planned investment in new gas to avoid stranded assets. Leading states (e.g. AZ, CA) have already begun taking a hard look at new gas – developers and utilities across the US should take notice.“