A federal rule requiring new natural gas-fired units running at higher capacity factors to cut carbon emissions by 90% makes Vistra Corp.'s existing fleet even more attractive to datacenter customers, company President and CEO James Burke said May 8.
The US Environmental Protection Agency's final Clean Air Act standards effectively mandate carbon capture technology for many power plants, rendering new gas builds prohibitively expensive at a time when hyperscalers are just as interested in the fossil fuel as they are in nuclear reactors, according to Burke.
"These are hard assets to replicate, and I would suggest with some of the EPA rules that have been issued, they're going to be even harder to replicate," Burke said on Vistra's first-quarter earnings call.
"That baseload technology, if it were to run over 40% capacity factor, would need to have the carbon capture capability installed by 2032," he added. "We do not see an operating combined-cycle with carbon capture technology anywhere in the world that we can point to."
The standards prompted criticism from trade groups questioning the feasibility of capturing and storing power plants' CO2 emissions, including the Edison Electric Institute, which represents investor-owned utilities.
Some datacenter customers have indicated they prefer gas over nuclear when it comes to contracting power supplies, indicating even tighter demand in light of the EPA rule, according to Burke.
"It's tough to invest into an environment where you've got uncertainty with protracted litigation, and so I think it's going to to be difficult to create new baseload assets with confidence," he said.
Several recent reports by power industry analysts have predicted that as demand from large tech companies for uninterruptible electricity supplies rises, gas will likely account for the majority of incremental capacity additions until long-duration energy storage technology can serve as a baseload power source. Datacenters alone could drive approximately 10 Bcf/d of gas demand through 2030, according to Raymond James.
Regarding gas-fired generation, Burke asserted that "the next best alternative" for colocation after combined-cycle plants is peaker plants.
"Some of our partners we're talking to are wrestling with the fact that to build out the number of gigawatts that they're talking about, there's only so many large meters you can be behind," he said. "You're going to have to actually add supply to the grid, and you're probably going to have to work in a hybrid type situation where you're pulling when there's surplus but then producing when you need, and I think peakers could potentially play that role."
Results
Vistra, which debuted on the S&P 500 on May 8, reported first-quarter 2024 adjusted EBITDA from ongoing operations of $813 million, up from $554 million in the first quarter of 2023.
The company issued guidance for adjusted EBITDA from ongoing operations of a combined $4.8 billion midpoint for 2024 and estimated the 2025 midpoint will be $5 billion to $5.5 billion.
Vistra shares were up 11% on heavy volume in afternoon trading May 8. Since the beginning of 2024, the company's stock has spiked 113%, settling at $81.74 on May 7.
"For independent power names, importantly, the improvement in forward power prices outpaced the move in regional gas hub pricing," analysts at BMO Capital Markets wrote in an April 21 report, "which would suggest the anticipated tightness in power is now being reflected in forwards, validating investors' bullish outlook on the sector."
