Gas, coal generation not stranded assets, but energy transition opportunities: industry experts

Power industry experts pushed back against the premise that gas- and coal-fired generation infrastructure are stranded assets, instead emphasizing the grid's continued need for gas and the value of existing interconnect rights, in a panel discussion at Platts' Financing US Power Conference Oct. 20.

Blending hydrogen into natural gas, investing in high-efficiency combined cycle plants, and having policies at the state- or ISO-level that reward reliability, such as capacity markets, were all ways that gas-fired plants could navigate the energy transition and continue to provide reliability to the grid, panelists said.

"The energy transition is not going to be done on the back of renewables alone, gas power is going to play a really critical role," Vimal Chauhan, managing director at GE Energy Financial Services, said at the conference's "Gas Assets—Securing Their Spot Long-Term in the Energy Transition Mix" panel.

Chauhan added that GE has embarked on testing the limits of hydrogen blending in gas-fired generation, with about 75 gas turbines operating today with hydrogen blend percentages of "five, 10, 20, 50, and even higher."

Tim Short, investment firm KKR & Co.'s managing director for energy transition, also highlighted an ongoing role for gas, saying, "For every megawatt of renewables online, there is some incremental amount of gas that needs to be there to maintain reliability."

Interconnect rights

Even retired facilities – both gas- and coal-fired plants – could provide substantial value to owners and investors in the form of land and interconnect rights.

"I look at our retired gas sites as opportunities," Vistra Energy's vice president of corporate development and strategy Christina Scalzo said.

"When someone calls me up and says 'I have a gas plant for sale' my thought is – what's the location and what's the interconnect?"

With solar and wind generation development heating up as a choice investment, the queue to be connected to the grid has lengthened substantially, according to panelists.

"Interconnection – that's the new bottleneck in my mind to turn over the generation fleet," Short said.

However, existing generation sites may retain the right to be connected to the grid, which could slash wait times if developers build on those locations.

"If you believe interconnection rights are going to be preserved regulatorily, you are sitting on an accretive asset that will rear its head," GenOn CFO Darren Olagues said of existing fossil fuel generation sites.

Legislation

Already, legislation has been enacted at the state level to incentivize this kind of conversion work. Illinois' Governor J.B. Pritzker signed the Climate and Equitable Jobs Act (SB 2408) into law Sept. 15, which included language from the state legislature's proposed Coal to Solar & Energy Storage Act.

The Coal to Solar and Energy Storage Initiative authorizes electric utilities in Illinois to collect a charge on each kilowatt hour of electricity delivered to customers, with the collected funds deposited into a special Illinois State Treasury fund. The fund will issue annual grant payments of $110,000 per megawatt of new energy storage capacity to qualified coal-fired generation facilities for 10 years, according to the legislation text.

Following SB 2408's passage, Vistra Energy committed to spending over $550 million to build six combined utility-scale solar and battery storage facilities and three stand-alone battery storage projects in Illinois. Vistra CEO Curt Morgan touted the projects as part of the company's commitment to "providing a responsible and just transition for [coal] plant communities" in a Sept. 15 statement, with its new build projects expected to make up lost municipal tax income from the coal retirements.

Short cautioned that this conversion approach will not work for all aging generation sites, with the potential dependent on the site having enough land to build solar or wind at sufficient scale. Batteries, which can be installed in smaller land parcels, could be an option in those cases.

Coal retirements

Apart from its land value and interconnection rights, the panelists were less optimistic about future coal plant operations.

Olagues said GenOn plans to close its remaining three coal-fired plants "after this winter", while Scalzo stated that the bulk of Vistra's coal capacity was slated for retirement by 2027.