Planned Gas Plants & Pipelines Likely “Stranded” in Future

A new Rocky Mountain Institute (RMI) study finds that most proposed gas power plants—and the pipelines that are being built to serve them—are likely to become uneconomic and unnecessary by 2035, as cheaper, cleaner energy alternatives outcompete them. In many cases, the captive customers of monopoly utilities would be the ones stuck footing the bill for these “stranded” assets.

What RMI did

RMI’s study looks at the economics of announced gas plants (and the proposed pipelines to supply these plants with fuel) compared to an equivalent “clean energy portfolio” in five key regions: New England, Mid-Atlantic, Midwest, Southeast, and New York. RMI chose these regions because of their significant proposed market growth in both gas generation and transportation services. The Southeast, for example, has almost doubled its natural gas consumption since 2000, and expected demand from proposed gas plants would increase power gas demand by another 60 percent.

After identifying the regions of interest, RMI assessed the economics of “clean energy portfolio” options in each region. This represents a bundle of clean energy technologies (including solar, wind, energy efficiency, demand response, and battery storage) that together provide the same energy, capacity, and flexibility as the proposed gas plants. To achieve this, RMI requires that the portfolio:

1. Produce as much energy as the proposed gas plant in each month of the year;
2. Match or exceed the power the gas plant provides during the region’s top 50 hours of peak demand (ensuring the AC keeps running on the hottest summer day and the heater is humming on the coldest winter day);
3. Match the gas plant’s output during the hour where the region experiences the greatest hour-over-hour increase in demand. The CEP also cannot exacerbate ramping issues (like the duck curve).

This means that the combination of renewable energy, storage, and efficiency provides all the grid services and power needs as the gas plant. The bundle (and costs) varies between each region based on regional-specific costs, performance, and availability of each of the renewable and efficient technologies from the Department of Energy’s national labs.

RMI then compared the costs of the Clean Energy Portfolio (CEP) to each of planned gas plant to determine which one would be cheaper to build and run. This least-cost mix was then modeled to assess the impact on expected gas use and the delivered cost of gas from new pipelines. This allowed RMI to not only assess the amount of gas plants likely to be uneconomic and rarely or never used, but also the cascading effect of this on the economics of pipelines being built to support these plants.

What RMI Found

1.The CEP is cheaper than over 80 percent of all proposed gas plants in the five key regions.
RMI’s modeling found that the clean energy option was lower cost than 49 of the 61 gigawatts (GW) currently planned to be built. If utilities and power producers built these cheaper clean energy resources instead, they (and their customers) would save a total of $16 billion (net present value) over the first 20 years of the plants’ operation. Further, this would avoid over 83 million tons of carbon pollution (equal to the emissions from all of Pennsylvania’s power plants) every year.

2. If these gas plants are all built, 70 percent would be uneconomic (and at risk of being “stranded”) by 2035.
Clean energy costs have fallen significantly—in the past year alone, the costs of onshore wind, offshore wind, solar photovoltaics (PV), and battery storage fell by 10, 24, 18, and 35 percent, respectively. Further cost declines will place increasing economic pressure on gas plants operating or built in the future. RMI’s analysis finds that 71 percent of planned gas capacity will be more expensive just to operate than building (and operating) these clean resources by 2035. By 2040, about 80 percent of these planned plants would be uneconomic to run. With the addition of a moderate carbon price, these plants would become uneconomic and at risk of being stranded seven years earlier (71 percent by 2028, 80 percent by 2030).

3. Almost all expected new gas demand would disappear as these gas plants are outcompeted by clean energy. This decrease in gas demand will lead to huge increases in gas transportation costs along the region’s pipelines.
RMI’s analysis finds that expected gas demand falls by at least 70 percent in each of the regions. This reduction in demand will cause pipeline throughput (i.e. transportation of gas) to decline by 20 to 60 percent across the five regions. In response, pipeline operators will need to increase rates to recover their costs over the much smaller amount of gas being transported: RMI estimates that the per-unit cost of gas will increase by 30 to 140 percent compared to the expected cost across the regions. This would cripple the economics of gas-fired generation even more, further eroding the value of both the gas plants and pipelines.

What it all means

The U.S. has seen a large rush to gas as fracking has uncovered a plentiful supply of cheap gas and the rush has no signs of slowing down. More than 60 percent of all new power plants built in 2018 were gas-fueled, with about 19 GW of new gas-fired capacity coming online. That is enough to power 10.3 million American homes annually and represents about $66 billion in capital spent. Power companies have another $90 billion worth of new gas plants planned. At the same time, pipeline developers are expected to spend another $30 billion on gas pipelines (on top of the $115 billion spent on pipeline projects since 1997), mainly to supply these new gas plants.

But as RMI’s analysis shows, much of this money may end up wasted and saddled on the backs of captive customers as cheap gas is overtaken by even cheaper clean energy. Policymakers, regulators, investors, and the public should all be wary of investing in even more new polluting resources. A further overbuild of gas is unnecessary and costly.