The Hidden Costs of Keeping Gas Plants Online in Texas & Beyond

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New gas-fired power plants can’t compete with clean energy if they have to pay for reliable fuel supply

As Texas braces for another cold snap, it’s certain that the power grid that failed Texans last year — leading to hundreds of deaths and billions of dollars in economic damage — will be tested again.

Going into this extreme weather event, a key vulnerability of the Texas grid remains its reliance on natural gas-fired power plants — which in turn rely on pipelines and wellheads and processing facilities to ensure that fuel is delivered where it is needed. In February 2021, weather-related and equipment issues at power plants as well as a lack of fuel from upstream facilities took over 25 GW of gas-powered electricity offline in Texas when the grid needed it most.

Since then, there have been weatherization improvements to power plants and pipelines to prepare them for cold temperatures. Yet, little action has been taken on another main cause of last year’s outage: fuel supply issues. This winter, there may still be vulnerabilities in supply, given that gas supply in Texas temporarily plunged during a cold snap in early January.

These risks across the gas supply chain are at odds with the pervasive narrative that fossil fuel-fired power plants are uniquely reliable in keeping the lights on. As we’ve seen in dozens of cases, in weather cold and hot, fossil power plants are indeed vulnerable to the threat of extreme weather and can fail to deliver just when the grid — and people trying to stay safe in their homes — need them most.

Paying the Price to Keep Gas Plants Reliable

There are ways to improve the reliability of gas plants and the gas supply chain in extreme weather — but they come at a cost.

A recent RMI study, Headwinds for US Gas Power, examined how much gas power would cost if gas plants had to pay pipeline operators to guarantee the reliable supply of gas when it’s needed.

Adding this cost would make almost all proposed gas plants more expensive than clean energy alternatives. With the added cost of firm gas supply, we found that 95 percent of gas plants proposed for construction across the country would cost more than building a clean energy portfolio — a combination of wind, solar, battery energy storage, demand flexibility, and energy efficiency that can provide the same reliability services. This includes 96 percent of proposed combined-cycle gas plants and 92 percent of combustion turbines or “peakers,” as shown in Exhibit 1.

Exhibit 1. Impact of internalizing the cost of firm gas supply on the competitiveness of new gas plants

 The cost of firm gas supply for power plants is only one of the additional, unanticipated costs that might be necessary to improve the reliability of the gas system. Additional upgrades at production facilities, other physical upgrades to plants to ensure they are “weatherized,” and more frequent weatherization inspections all represent additional costs that are starting to become clearer as winter storms loom.

Winter Storm Warning for Gas Power Competitiveness

When investors or regulators start to account for these additional costs of shoring up the reliability of new gas power plants, clean energy becomes much more competitive in providing that same level of reliability. Even without accounting for these additional costs, solutions like energy efficiency can be a cheaper way to improve grid reliability than building new gas plants.

Future gas power projects should be asked to demonstrate whether and how they can guarantee reliability in the face of extreme weather — and fully factor the costs of doing so into their business case. In most states, regulators have an opportunity to ensure that utilities adequately factor the costs of making a gas plant reliable into their future resource decisions — and compare those costs to renewable alternatives. In the restructured Texas electricity market, however, individual natural gas power plants can choose whether to take on these costs or risk not being able to operate during high-price, high-demand periods — but the consequences for Texans are dire if they choose wrong.

Building a future electricity system that can keep the lights on will require changing how we think about and account for the costs of the gas supply chain. Acknowledging and accounting for vulnerabilities across the supply chain, instead of treating gas as an infinitely reliable resource, can open up the opportunity to build a more reliable grid with cleaner, less costly technologies.

By Lauren Shwisberg & Mark Dyson

© 2021 Rocky Mountain Institute. Published with permission. Originally posted on RMI Outlet.