2019 Saw Deep Decarb Pledges: 2020s Will Require Bold Action

Part of NRDC's Year-End Series Reviewing 2019 Climate & Clean Energy Developments

A paradigm shift is underway in the Midwest (and nationally) on climate and clean energy. 2019 saw unprecedented calls for action on climate. This last year also marked a tipping point in which renewables began out-competing existing coal and nuclear plants, and new gas-fired power, on the economics alone. Battery storage had an impressive year, with more massive utility-scale renewables + storage projects proposed and in operation than ever before. And the picture of transportation electrification came into sharper focus with four states (including Minnesota) joining the “Zero Emission Vehicle” clean car program.

But while these trends are having important impacts on the future of the power sector, no trends defined 2019 more than the wave of state and utility deep decarbonization commitments, coupled—conversely—with a new dominance for gas-fired power nationally.

The good news is that the electric power industry holds enormous potential for accelerating the shift toward a clean, safe, reliable future—even beyond the grid. The power sector is the gateway to decarbonizing much of the US economy. To cut emissions from cars, buildings, industry, and agriculture, we must squeeze the remaining oil and gas use out of the system—that means “plugging in” to a net-zero carbon electric system. Recognizing this gatekeeper role, the electric power industry has started to step up, with an unprecedented number of deep decarbonization commitments, many aiming at net-zero or carbon-neutral by 2050.

The bad news is—despite these commitments, we are still not on track.

2019 was another record-breaking year for global greenhouse gas emissions, driven, in part,* by a sharp uptick in gas-fired power coming online as coal fades. We are seeing an explosion of new gas power plants across the US—especially in the Midwest. While the power sector's transition from coal to gas drove much of the emissions reductions over the last decade, as we enter the 2020s the growing dominance of gas (at times to the exclusion of renewables) is starting to undermine that progress. With the advent of cost-competitive wind, solar and storage, gas is no longer a “bridge” to a cleaner grid. Rather, its expansion is now an impediment to the deeply decarbonized power sector that will be so critical to tackling the climate crisis.

This concern is underscored by the findings of the latest IPCC report and its clear emphasis on doing as much as possible in the next decade to clean up the grid. The report makes clear that taking action on climate change is very much a challenge for the present; and the forthcoming decade of the 2020’s will be the most critical for progress.

In the Midwest, 2019 saw a wealth of impressive progress in the energy sector. However, we are still not on track to meet the IPCC’s 2030 targets, let alone the 2050 goal, and after years of progress power sector emissions began to climb again in 2017. The message is clear: utilities and states must rise to the deep decarbonization challenge and get serious about forging ambitious near-term renewable energy and energy efficiency goals. We must make real progress over the next decade. Waiting is not an option.

*In 2019 new gas plant additions outpaced coal retirements, while high consumption in buildings and industry drove further emissions increases.

A natural gas power plant

iStock

Progress on Clean Energy, But Gas-Fired Power Growth Could Undermine State and Utility Commitments

This last year marked a full-blown sea change for the electric power industry, with commitments at the state, city, and utility level to deeply decarbonize power generation dominating the landscape, in some cases reaching net-zero emissions. These commitments have been widespread in the Midwest (see my June 2019 blog), where leaders are taking to heart the need for immediate and bold action to address the climate crisis, with decarbonization as one of the leading policy strategies at the center of that action.

But also dominant is the troubling trend of gas-fired power plants rapidly filling the generation gap as coal continues its decades-long decline. Gas plants are now the top source for U.S. electricity generation—outpacing coal—and unless we act now, are expected to remain the largest source of power for the next few decades. Gas-fired power is less carbon-intensive than coal, and has contributed to a short-term decline in emissions by shouldering the transition. But it is by no means a clean fuel. Combusting gas to generate electricity still emits significant amounts of carbon, and leaks from gas production and transportation significantly increase its carbon footprint since methane is a potent greenhouse gas.

But the gas plant build continues to churn. At least 200 new gas plants are planned or in development across the U.S., totaling nearly 70,200 MW of additional capacity — nearly equal to the total generation capacity in Texas. About 1/4 of these new plants are coming to the Midwest, complicating efforts to cut emissions in a region historically dominated by coal.

Far more of these plants are being built than are necessary to meet demand, or to integrate even ambitious levels of renewable energy. For one, there is 24,000 MW of excess capacity on the PJM system (much of it gas) that is not actively needed. Further, many of the existing plants are underutilized. In the Midwest, the average capacity factor (the rate at which the plants are run compared to their industry specs) for existing NGCC plants is about 53% (source: S&P Financial - Data Screener). This inefficiency suggests that our region could do with fewer plants online overall, with the remaining measurably ramped up based on grid and reliability needs.

Complicating this picture further is the cost risk for consumers that loom large over the next decade as more and more gas plants are built. A Rocky Mountain Institute study finds that clean energy is now so cost-effectiveness that many of the new gas plants coming online could become “stranded” within the next 15 years—leaving consumers holding the bag.

These data point to only one conclusion: we must staunch the bleed of new development and cut gas use dramatically to bring emissions to zero.

Tug of War for the Future of the Midwest Power Sector

As the electric power industry begins to get on board with the decarbonization challenge, we see utilities starting to step up and make ambitious commitments. While that trend is positive, their emissions targets must be closely compared to investment plans as we head into the do-or-die next decade. Some utility plans appear to be consistent with their decarbonization commitments, while others are just not lining up.

Ambitious Plans for the Next Decade

The IPCC report provides a useful frame to gauge just how serious a utility is about its clean energy goals. Enforceable commitments in the next decade to ambitious levels of renewables are the formula for keeping pace with deep decarbonization. Another key piece of the formula is leapfrogging gas—utilities that are skipping new gas plants appear more able to meet their decarbonization targets, and do it sooner.

An excellent example of this is Consumers Energy in Michigan, which is focusing on a “lean and clean” plan that avoids new fossil development. Following its announcement last year to deeply decarbonize its power fleet by 2040, the utility brokered a historic plan to move away from coal entirely. Notably, rather than spending consumer dollars on new gas-fired power, the utility crunched the numbers and concluded that it would be most cost-effective to meet demand with massive investments in renewable energy (550 MW of wind and 5,000 MW of solar over the next few decades), as well as a focus on shrinking the overall pie of energy use via ambitious levels of energy efficiency. Importantly, Consumers is front-loading its renewable ramp-up throughout the 2020s so that it can be ready to fill demand with clean energy once it starts its next wave of coal retirements in 2030.

The context statewide is encouraging as well; newly-elected Governor Gretchen Whitmer signed Michigan onto the US Climate Alliance earlier this year, and created a new office of climate and energy to help the state rise to the decarbonization challenge. This effort will hopefully set the stage for increasingly ambitious emissions goals, extending economy-wide.

Solar garden at Grand Valley State University

Consumers Energy

NIPSCO in Indiana is another example of real progress, the quiet resolve of which has become the stuff of folk legend here in the Midwest (at least on #energytwitter).

NIPSCO has unveiled a plan to retire its entire coal fleet by 2028 (reducing carbon emissions by “more than 90%” by 2028 from a 2005 baseline) and to replace that capacity with a cheaper portfolio comprised of renewables and storage—notably, without building new gas plants. The company told Indiana regulators that of all the pathways it analyzed, skipping gas in favor of renewable energy was the most cost-effective option for consumers.

Finally, no discussion of deep decarbonization in the Midwest would be complete without including Xcel Energy in Minnesota. The utility committed to 100% carbon-free power by 2050, with an interim goal of cutting emissions 80% from 2005 levels by 2030 – the first major utility to set this ambitious goal on such an accelerated schedule. It’s important to note that Xcel is proposing to build a new gas-fired plant as part of its long-term integrated resource plan, earning the utility an A-grade from local clean energy groups for retiring its coal plants but an F for not passing up new gas infrastructure along the way. It is notable, however, that the utility is leading with an ambitious build-out of clean energy first, much of it front-loaded over the next 10 years.

The “Cognitive Dissonance” of Leading with Gas

A separate cohort of utilities is setting important longer-term targets, but in the near-term are forging ahead with new gas plants without looking seriously at the alternatives. Setting a zero-carbon goal while continuing to invest in fossil generation represents what the Energy and Policy Institute terms “cognitive dissonance”. We are still trying to make sense of this phenomenon, but a few examples were notable in the Midwest in 2019.

One utility currently going down the “cognitive dissonance” path is DTE Energy, the largest investor-owned utility in Michigan. Earlier this year, DTE announced a carbon reduction target of 80 percent by 2040, about a year after securing regulatory approval to spend $1 billion on a new, 1,100 MW gas plant. DTE has since increased the ambition of its target out to net-zero by 2050, with a 2030 goal to cut emissions by 50%.

However, there is no clear plan to get there. In its long-term resource plan (currently pending a decision at the Michigan Public Service Commission), DTE is preserving the option to build more gas down the road even with the new plant that was green-lit in 2018. This gas-heavy path is hardly surprising, though, given that the utility’s analysis of different pathways shortchanged the value of wind, solar, storage, and energy efficiency. Notably, the utility is only planning to add 525 MW of solar by 2030, compared to 5,000 MW in that time period from their fellow Michigan utility, Consumers Energy.

DTE’s public filings raise serious questions about the viability of its 2050 net-zero goal. Adding to those concerns is the company’s pipeline business, which is investing billions of dollars in infrastructure that will deliver fracked gas from other parts of the region to new gas-fired plants in Michigan. According to Energy and Policy Institute, over the past two years the pipelines and gas storage business segment (including its co-ownership of the NEXUS pipeline with Enbridge) made up nearly one-quarter of the corporation’s total profits–up from 8% in 2010.

These investments signal a longer-term gas-focused business strategy for the company, one that is incompatible with long-term decarbonization.


Two IRP Paths to Michigan's Energy Future: Consumers vs. DTE

Ariana Gonzalez - NRDC

Another utility that has proposed significant new gas plant investments is Duke Energy, the single largest carbon emitter among utilities nationally. In 2017, Duke set an initial goal to reduce emissions 40 percent by 2030, from a 2005 baseline; similar to DTE, this last Fall the utility raised that 2030 goal to 50% and extended it out to net-zero target by 2050, which (for the record) are laudable goals.

Duke’s focus on a 2030 timeline also suggests an acknowledgment of the importance of the next decade for cutting emissions. However, even with the more ambitious 50% target, Duke had already achieved much of the promised emissions reductions by the time it made its announcement in 2017. Taking that prior progress off the board, the company’s forward-looking ambition for the next 10 years would cut emissions at a slower rate at the precise time when speed is the most critical.

Moreover, the utility continues to pursue a strategy that leads with gas. Duke Indiana’s long-term resource plan, for example, proposes to delay closing coal plants, build only a moderate level of wind and solar, and could include construction of nearly 3,000 MW of new gas plants. This path is a far cry from their fellow Indiana utility, NIPSCO’s conclusion that a rapid ramp-up of clean energy over the next decade is a safer bet than risking it all on fossil plants.

The Decarbonization Road Ahead

While the Midwest has seen impressive emissions reductions over the last decade, the 2020s will be the pivotal decade that will determine the scale of progress for several decades to come. The recent glut of gas plant development in the region could impede the ramp-up of renewables that is so critical to preparing the sector for its key gatekeeper role to help decarbonize the rest of the region’s economy.

But there is also tremendous opportunity to turn things around:

  • Amp up Utility-Level Ambition – Utilities who are off track on their decarbonization goals should look to their peers who are prioritizing near-term progress on renewables. The sooner we improve the carbon-intensity of the power grid, the fewer emissions we’ll need to mop up later. There is also a need to rethink the ambition of longer-term targets. Many utilities in the Midwest are aiming at 80% emissions reductions or less, which does not keep pace with the IPCC call for full decarbonization of the power sector.
  • Strong state policy – With the economic case for energy efficiency and renewables so abundantly clear, it makes sense that utilities are choosing clean energy over coal (and, in some cases, over new gas). But to ensure we stay on course with decarbonization targets, and avoid new gas plants along the way, this ambition should be memorialized in state policy. One example is the pending Clean Energy Jobs Act in Illinois, which if enacted, will be one of the leading clean energy policies in the country, putting the state’s power sector on a 100% decarbonized path; emphasizing a renewables ramp to 45% by 2030; starting down the road of cutting pollution from cars, trucks, and buses; and ensuring that people are at the center of climate solutions with a jobs and economic justice policy that aims to diversify the clean energy workforce.
  • Engaged regulators – In states where public utilities commissions have jurisdiction over generation decisions, they must require investment in cleaner, more efficient, and affordable alternatives—like energy efficiency, demand response, renewable energy, and battery storage—before gas power plant investments.
  • Fix overbuild and gas preference in markets – Despite the clear cost-competitiveness of efficiency and renewables to fossil, PJM has designed its “capacity market” (which pays power plants to be available to produce electricity) in ways that uniquely favor gas plants and penalize renewables and demand-side solutions. The capacity market, and for that matter, the majority of grid operator rules in the region, must evolve to recognize the full range of value that clean energy brings to the grid.
  • Expand decarbonization economy-wide – The power sector is a critical piece of the decarbonization puzzle, as it will be the foundation for electrifying other fossil fuel uses. But to avoid a climate calamity, we are going to need not only all utilities to join in, but for all sectors that contribute to carbon pollution to step up.

The 2020s—by all accounts—will be the most important (and challenging) decade for humanity’s efforts to mitigate the worst impacts of climate change. We’re looking forward to continuing to work with the electric power industry to ensure we meet the challenge head-on.

About the Authors

Samantha Williams

Director, Midwest Region, Climate & Clean Energy Program

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