Pennsylvania's Gas Power Problem, Part II: Cost and Risk

Part I of this blog discusses the ongoing build-out of gas-fired power plants in Pennsylvania and the factors driving it. 

Pound-wise, Ton-foolish: the Climate Impacts of Gas-Fired Power

To avoid the worst impacts of climate change, we need to make dramatic cuts in greenhouse gas emissions. Where the power sector is concerned, that means using energy much more efficiently, scaling up renewables, and putting a legally binding and steadily declining cap on carbon emissions.

Pennsylvania has taken some steps in this direction, and with the recent Finding Pennsylvania’s Solar Future plan and new Climate Action Plan in hand, the state has prepared itself well to take more. But the frenzied build-out of gas generation happening now is taking Pennsylvania in the wrong direction.

As told by the American Petroleum Institute and Marcellus Shale Coalition, the climate story of Pennsylvania’s gas build-out is that carbon pollution from the state’s power sector has decreased 30 percent over the last decade, as gas plants have replaced higher-emitting coal plants. These decreases have indeed occurred. But the story doesn’t end there.

Even with these reductions, 2018 emissions from Pennsylvania’s power sector were still a staggering 81 million tons. (For context, that’s more than the collective 2018 power sector emissions of all nine Northeast and Mid-Atlantic states participating in the Regional Greenhouse Gas Initiative, even though those states have more than triple the population of Pennsylvania). And the Commonwealth's emissions are on track to go up even more.

Preliminary analysis by NRDC projects that if Pennsylvania continues on its current path, carbon emissions from the power sector will rise to more than 88 million tons per year in 2040, because while more coal plants will retire, nuclear plants will also shut down and even more gas will come online due to the market dynamics described in Part I of this blog series. This projection is consistent with the Climate Action Plan, which projected that emissions from energy production activities in Pennsylvania would rise 8 percent from 2015 to 2050 in a business-as-usual scenario.

Then there’s the methane. A 2018 analysis by the Environmental Defense Fund estimated that emissions of methane by companies producing gas in Pennsylvania have risen to some 520,000 tons a year, mainly due to leaky and malfunctioning equipment, with the same near-term climate impacts as 11 coal-fired power plants. (Methane is a more potent greenhouse gas than carbon—each ton of methane is the climate equivalent of 25 tons of CO2—and is the second-biggest driver of climate change after carbon.)

In theory, carbon dioxide pollution from gas-fired power plants could be minimized with carbon capture and sequestration (CCS) technologies; and methane pollution could be mitigated by better equipment and leak-detection-and-repair protocols. But Pennsylvania’s gas plants are all being built without CCS. And rules that the DEP recently proposed to limit gas production emissions don’t directly address methane.

For future generations of Pennsylvanians, then, the rise of gas-fired generation in Pennsylvania is not a happy climate story.

The Risk for Consumers

Low gas prices in recent years have lowered wholesale electricity rates in PJM, though for various reasons these lower rates have not trickled down to Pennsylvania consumers. (Some of the savings have been canceled out by PJM’s overprocurement of “capacity,” which forces consumers to pay hundreds of millions of dollars to keep unneeded power plants running).

Now, however, the price of gas is going up as demand rises for domestic generation and exports of liquefied natural gas (LNG). And further increases are forecast by the U.S. Commodity Futures Trading Commission (CFTC) the U.S. Energy Information Administration (EIA), and Moody’s, among others. The CFTC also notes that greater LNG exports “may expose a heretofore relatively isolated North American market to global market dynamics,” leading to more volatility.

Harrisburg’s conventional wisdom has long been that there’s so much shale gas in the ground that supply will always be able to meet demand. But even assuming that that’s true, it doesn’t necessarily mean that supply will meet demand cheaply. Especially if the gas production and generation markets become less competitive.

“Our energy market has worked well because you had diversity," State Senator Robert Tomlinson stated last month. “And I am very concerned that if you end up with a monopoly of [gas-fired power], then they can call whatever price they want.”  

Tomlinson’s apparent concern is not monopoly per se – though that’s a serious problem in the U.S. economy today – but market power, a broader concept that includes any way of winning in a market by gaming the rules—think Enron. The Marcellus Shale Coalition dismisses such worries, but market power is already a problem in PJM’s capacity market, and recent developments have raised questions about PJM’s and FERC’s ability to police market manipulation, and about what activities even count as manipulation. Increasing consolidation in the gas production industry could also lead to less competition, and in turn higher gas prices.

PJM says that Pennsylvania’s gas power build-out creates risk only for investors, and not for consumers. Certainly there are investor risks, but PJM is increasingly concerned about reliability risks from over-reliance on a single fuel source. And as communities where investors have abruptly closed coal plants know, most Pennsylvanians can’t hedge against the risks of investor decisions as easily as investors can. The likelihood of higher gas prices magnifies the consumer risk.

Pennsylvania Needs More Clean Energy

The “rush to gas” isn’t unique to Pennsylvania—earlier this year the U.S. Energy Information Administration forecast that gas power plants would comprise most of new generation built in the U.S. between now and 2050. But Pennsylvania is an extreme case—and a challenge for NRDC and others working for a lower-carbon, less risky future based more on efficiency and renewables.

In Harrisburg, gas interests have persuaded many policymakers that the future of the gas build-out will be largely the same as the present, with ever greater reductions in carbon pollution, lower electricity costs, and economic development. They’ve also managed to frame the rise of gas power as a “free market” story while dismissing the success of renewables as a subsidy story. (Never mind the billions of dollars of subsidies that have gone—and continue to go—to subsidize oil and gas production for decades).

Meanwhile, the short-term benefits of the build-out have given champions of Pennsylvania's electric sector restructuring a sense of vindication. And because our financialized, monopolized, rent-ridden economy leaves so many Pennsylvanians struggling to make ends meet, some consumer groups feel no choice but to embrace currently cheap gas, especially with the industry as an ally in fighting the deeply flawed nuclear subsidy legislation that’s been introduced in Harrisburg.

But Pennsylvania doesn't have to choose between a gas build-out and a nuclear bailout. The Commonwealth can de-risk its power sector and create tens of thousands of new clean energy jobs by enacting aggressive but achievable goals for renewables and energy efficiency, putting declining market-based limits on carbon pollution, and using carbon-pricing revenue to fund programs that protect low-income Pennsylvanians. A narrowly tailored, time-limited subsidy for struggling nuclear plants could complement such policies, but must not stand in for them.

Last year, the Rocky Mountain Institute issued a report showing how clean energy portfolios of efficiency, large-scale and distributed renewables, battery storage, and demand response can be more cost-effective than building new gas plants. In the idealized world of economics textbooks, this kind of analysis might translate immediately into decisions by market actors. But PJM’s real-world markets are not “the market” of textbooks. So federal and state policies are needed to align market incentives with public goods like lower carbon emissions .

There's legislation in Harrisburg to do this—from bills (SB 600 and HB 1195) to raise Pennsylvania’s renewables goals to 30 percent by 2030, to a bill (SB 232) to expand efficiency, to a bill—reportedly being developed—to create carbon pollution limits and a cap-and-invest program. We just need political will and leadership from Governor Wolf and the General Assembly. Without it, we’re building towards a dangerous and expensive future.