With about 500 gigawatts of coal-, nuclear-, and gas-fired generating capacity set to be shut down in the United States by 2030, installing portfolios of distributed energy resources (DER) rather than defaulting to new gas plants can help the country avoid US$1 trillion in costs and reduce its greenhouse gas emissions, the Rocky Mountain Institute argues in a report issued last week.
“Gas-fired generation technology is mature and cost-effective compared to older, retiring generators, especially with the currently low (but inherently volatile) price of natural gas,” analysts Mark Dyson and Alex Engel acknowledge in a recent post for RMI.
“However, given the size of the coming wave of retirements, approximately $500 billion of investment would be needed through 2030 to replace all retiring capacity with new gas. This investment would lock in another $400 billion to $500 billion in fuel costs, and five billion tons of CO2 emissions in the same period.”
RMI’s report on the economics of clean energy portfolios maps out another option.
The 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,” Dyson and Engel write.
“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.”
The report documents four gas plant replacement case studies, two focusing on combined-cycle facilities intended for more or less continuous operation, the other two on natural gas “peaker” plants. “In three of the four cases, optimized, region-specific clean energy portfolios cost eight to 60% less than the proposed gas plant, based on industry-standard cost forecasts and without subsidies,” the two analysts report. “In only one case was the clean energy portfolio’s cost slightly higher than the proposed gas plant. However, further analysis revealed that modest carbon pricing (i.e., < $8/ton) or feasible community-scale solar cost reductions would easily reverse the result.”
Projecting recent reductions in renewable energy and energy storage costs just two years into the future was enough to wipe out the cost differential.
“Expanding the analysis to the entire US market, RMI found an opportunity to reduce total grid costs by avoiding at least $370 billion in new gas plant investment and operating costs, and redirecting those savings to investment in renewable energy and DERs,” Dyson and Engel write. “This pathway would unlock a $350-billion market for renewables and DERs through 2030, while avoiding 3.5 billion tons of CO2 emissions over the same time period.”
But with $100 billion in U.S. gas plant investment expected by the mid-2020s, “there is a narrow window of opportunity to avoid imposing stranded asset risks on merchant power plant investors (in restructured markets) or utility customers themselves (in vertically integrated states),” they warn. The report calls on state regulators to consider alternatives to new gas generation, on market operators and state regulators to “align investment incentives with least-cost outcomes”, and on utilities to “update processes to reflect the new reality”. It advises technology and service providers to “offer resource portfolios that meet grid needs, either individually or as part of optimized portfolios, and continue to drive down soft costs that may limit the cost-effectiveness of aggregated resource portfolios.”
