FEATURE: Renewables a factor in gas-fired power retirements, but may help in longer run

About 83.5 GW of natural gas-fired generation has retired since 1991 -– 57.7% of it since 2011. Coincident massive renewable generation growth likely reinforced the trend, but the flexibility of gas-fired capacity to fill in for intermittent renewables may help extend gas plants' viability over the next few years.

About 5.6 GW of the generation retired since 2015 was relatively new – built in 1991 or thereafter, according to S&P Global Market Intelligence's power plant database.

Based on US Energy Information Administration data, Gurcan Gulen, principal at G2 Energy Insights, a Boston-area energy consultancy, said 46 GW of gas-fired generation was retired between 2011 and 2020, of which more than 70% were older steam and combustion turbines, but 90 GW of new gas-fired capacity was built.

"Low gas prices leading to low electricity prices in competitive markets was a driver of most gas retirements but also some coal and nuclear," Gulen said in a March 22 email. "So was the excess capacity expansion, often induced by generous capacity markets (which encouraged older plants to stay online and some new gas-fired plants) and subsidized wind and solar. Negative bidding by wind and, to a lesser extent solar, to collect [production tax credits] and/or to avoid curtailment lowered average prices in many hours further."

Efforts to support generation via minimum offer price rules in capacity markets and scarcity pricing schemes in the Electric Reliability Council of Texas market were insufficient to keep retired plants running, Gulen said.

Frequent cycling

Wade Schauer, a research director for Americas power and Renewables at the Wood Mackenzie consultancy, said many of the larger natural gas combined-cycle units "were designed to run 24/7, but renewables are forcing them to cycle daily, which leads to increased maintenance costs."

"Low energy costs and oversupplied capacity markets mean they can't cover their fixed operating costs," Schauer said in a March 22 email. "If coal plants retire in large numbers as expected, that would help some of the older NGCCs survive for another ten years or so because then they would cycle off and on less frequently."

Demand issues

One factor in the relatively early retirement of gas-fired generation over the recent past has been slow load growth since the Great Recession of 2008-09.

Over the past three decades, noncoincident peakload in the Lower 48 States has grown by about 245.7 GW to about 769.8 GW in 2020, according to North American Electric Reliability Corporation data. However, much of that growth was front-loaded, with a growth rate of about 12 GW/year for the first 15 years and a growth rate of less than 4.4 GW/year for the most recent 15 years.

"The abrupt cessation of peak demand growth [circa] 2008 left the industry with too much capacity," said Morris Greenberg, senior manager for North American power at S&P Global Platts Analytics, in a March 22 email. "The least efficient peaking units were not needed. Once fully depreciated (in the case of regulated units) there was no longer any reason to keep them online. Renewables probably played a role by reducing net load. However, renewables provide diminishing capacity value as their share increases, so I would not necessarily expect a negative impact going forward. Battery penetration would be a greater concern for peaking units."

ERCOT blackouts

The winter storm that struck Texas in February, resulting in massive generation outages, blackouts for more than 4 million electricity customers and the deaths of 57 people is having repercussions which may also enhance gas-fired generation's longer term viability.

"With respect to wind/solar in ERCOT, neither is expected to provide much dependable capacity in the winter so I would not expect development plans to change," Greenberg said. "With respect to gas-fired capacity, the [Public Utility Commission of Texas] may want to consider requiring power plant weatherization to ensure operability at low temperatures. They could also require firm gas supply or dual-fuel capability (that will be usable at low temperatures and for a sufficient number of days). The firm gas requirement could encourage addition of gas storage which could be weatherized at lower cost than individual wells."

G2 Energy Insights' Gulen said, "[Clearly] the loss of gas generation was the catalyst of blackouts," but added that this "was primarily caused by the lack of preparing generation facilities and gas supply chain for such extreme winter weather."

"I'm sure assumptions will be revisited in terms of probability of such extreme weather and risk models will be adjusted but fundamentally the problem was not a capacity (or resource adequacy) problem," Gulen said. "Still, capacity markets, interconnection to neighboring grids, more demand-side participation, [distributed energy resources], etc. are all on the table."

Campbell Faulkner, senior vice president and chief data analyst at OTC Global Holdings, an interdealer commodity broker, said he is "deeply concerned about thermal units being bid out of the dispatch stack."

"While reserve margins in the various control areas are being 'maintained,' across the US, the lack of dispatchable and controllable units leads me to believe we are trading reliability for overall lower power prices," Faulkner said in a March 22 email. "That trade-off could lead to more frequent events similar to the Texas blackouts due to the mis-match between what's available to dispatch and the constant growing need for greater electrical generation. I still maintain high confidence in the continued renewable build-out, but worry that the [grid reliability] aspect along with the ability to deal with adverse grid conditions has become a lesser consideration to the overall generation mix. More frequent rotating outages … on high load days could spur more localized backup generation (solar/battery and generators)."

More distributed generation will likely boost the need for large conventional generators to maintain frequency, but these are facing challenging economics, Faulkner said.