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Critics question Southeast utilities' dramatic gas capacity expansion plans

As electrification intensifies and power-hungry industries like datacenters proliferate, decisions by US utilities to dramatically expand gas-fired power generation capacity, particularly in the Southeast, are raising questions about resource diversity and climate impacts.

Southeast utilities say they face "historic" and "unprecedented" electricity demand. Duke Energy Corp. forecasts eight times greater load growth, and Southern Co. subsidiary Georgia Power Co. forecasts 17 times greater load growth than either utility expected two years ago. Peak summer demand across the US is expected to grow by 38 GW over the next five years, according to a December 2023 report from consultant Grid Strategies.

This subsequent turn toward additional gas capacity to meet rising demand is raising the hackles of environmental, clean energy and consumer advocates as proposed generation portfolios appear to grow more, rather than less, fossil-fuel dependent. Utilities maintain gas is the best choice for available, affordable, firm, dispatchable generation to meet immediate demand.

"As we look at the exponential growth we're seeing, we're going to need all available resources," Regis Repko, senior vice president of generation and transmission strategy at Duke Energy, said in an interview with S&P Global Commodity Insights. "It's not an either-or, it's an all-of-the-above approach.

"As a result of that growth, we may see a temporary increase in carbon emissions, or a temporarily slower rate of carbon reduction in the short term, but we remain on track to meet that end goal of carbon neutrality by 2050," Repko added.

Critics warn going all in on gas expansion exposes companies and customers to stranded asset risk and volatile fuel prices, and jeopardizes climate emissions goals. In a sign of escalating dispute, a member of the South Carolina Public Service Commission on March 13 resigned in protest of legislation that paves the way for a new large gas plant and makes sweeping regulatory changes in the state.

"Maybe some of this gas is needed," Ric O'Connell, executive director of GridLab, a nonprofit that provides technical assistance for electric grid transformation, told S&P Global Commodity Insights. "But the magnitude [Southeastern utilities] are trying to install is just very high. ... I'm concerned that they're sort of allergic to resources that are clean, that are cheaper than gas."

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Risks

"I can't recall the last time I was so alarmed about the country's energy trajectory," said Tyler Norris, former vice president of development at independent power producer Cypress Creek Renewables LLC and now a doctoral student at Duke University's Nicholas School of the Environment.

A rushed gas capacity build risks "crowding out" cleaner generation, according to Norris. New-build gas capacity will need to compete with expanding portfolios of zero-fuel-cost resources to maintain high capacity and generate net revenues, said Tyler Fitch, manager in the carbon-free electricity practice at RMI, which promotes market-driven solutions for energy systems.

Gas assets may also need to compete with each other in a potentially carbon-constrained policy context, clean energy advocates warn, and some utilities could see regulatory pushback as rising rates pressure customers.

"We already have other significant capital expenditures that need to happen on the grid," Norris said.

In South Carolina, Tom Ervin quit the South Carolina Public Service Commission, effective immediately, over energy legislation proposed to alter utility regulation in the state, including authorization of a 1,020-MW gas-fired plant to be jointly owned by Dominion Energy Inc. subsidiary Dominion Energy South Carolina Inc. and the South Carolina Public Service Authority, which does business as Santee Cooper.

"My sincere hope and prayer is that we don't end up with another multibillion-dollar disaster like we had not that long ago when SCE&G and Westinghouse both abandoned the V.C. Summer nuclear reactors due to cost overruns and poor management," Ervin told S&P Global Commodity Insights. "The PSC has been under heightened scrutiny ever since that nuclear debacle ... Ratepayers ended up the big losers because they will have to cover much of the financial losses incurred when the project went belly up."

South Carolina Electric & Gas Co., the original developer of the Summer nuclear plant expansion, was later acquired by Dominion Energy and renamed Dominion Energy South Carolina.

Over-reliance on gas brings its own potential reliability risks, including price and supply volatility and fleet instability during extreme weather, as seen during a December 2022 winter storm that led to rolling blackouts across the Southeast.

"Gas is kind of the easy button and not necessarily the right solution; it hasn't performed very well," O'Connell said. "Saying gas is the only thing we can do is just a lack of imagination."

Gas expansion also risks undermining or contradicting corporate, state and federal carbon reduction commitments, according to Fitch and Norris.

"This discrepancy drives regulatory, reputational and climate-transition risks that affect utilities' shareholders and ratepayers," Fitch said.

A bridge fuel

Major Southeast US utilities including Georgia Power, Duke Energy Carolinas LLC and Duke Energy Progress LLC, Santee Cooper, Dominion and the Tennessee Valley Authority are looking to gas as a critical portfolio component, including as a bridge fuel between renewables, future technology developments and firm generation.

Utilities retiring aging coal generation have also incorporated gas as a primary replacement, with some potentially delaying coal retirements to meet expected load growth.

Georgia Power proposed three oil- and gas-burning turbines of up to 1,400 MW by winter 2026-2027 as it forecasts additional winter capacity needs of more than 8 GW by 2030-2031 and additional summer capacity needs of more than 6 GW by 2031, according to a supplement to its latest integrated resource plan. The utility, which is also aiming to complete bringing online more than 2 GW of new nuclear capacity this summer, has proposed more gas power purchase agreements as well, including 750 MW from corporate affiliate Mississippi Power Co.

Duke's Carolinas subsidiaries want to add three new gas-fired plants and the company is seeking nearly 9 GW of new gas before 2035, nearly tripling the gas generation proposed in its first Carolinas carbon plan approved in 2022.

Duke has faced criticism for proposing alternatives to a North Carolina-mandated 70% carbon reduction by 2030, preferring to aim for 2033 or 2035 and acknowledging its plans could stymie emissions goals.

Regulators in South Carolina approved Dominion Energy South Carolina's resource plan in November 2023, including plans to retire and replace two fossil plants with new gas. The utility called gas a "mature and proven technology" and did not model any coal replacement portfolios that did not include new gas or fossil resources.

The TVA completed 750 MW of new gas units at its Paradise CT plant in Kentucky in December 2023, in addition to three new turbines added at the Colbert CT plant in Alabama in July 2023. The TVA also proposed a six-turbine expansion at the Thomas H. Allen CT plant in Tennessee.

"Natural gas is an important part of our transition to a carbon-neutral future while maintaining reliability," TVA President and CEO Jeff Lyash said in January. "These state-of-the-art units will ... improve flexibility as we add more renewable energy, which is not always available on demand."

Most of those utilities hope to see decisions on their proposals from lawmakers or regulators this year.

Outside the Southeast, utilities including Idaho Falls Power in Idaho, Omaha Public Power District in Nebraska, PPL Corp. and WEC Energy Group Inc. also plan to expand gas capacity.

Alternatives

Environmental, clean energy and customer advocates are concerned utilities are not considering alternatives to gas to meet demand or improve reliability.

"Reliability is a characteristic of a portfolio, not a single resource," Fitch said. "Storage is quick to deploy, requires no fuel infrastructure and will continue to provide value by integrating cost-effective renewables over its lifetime."

Virtual power plants can also coordinate distributed generation assets, with the US Energy Department forecasting up to 160 GW of capacity and a 20% reduction in peak demand in 2030, Fitch said.

A recent RMI study found that grid-enhancing technologies could yield more than $1 billion in production savings by optimizing the transmission grid from interconnecting solar, wind and battery resources.

"Needle peaks" in demand during relatively rare extreme weather events could be better served by alternatives such as demand response or clean energy than gas, advocates said.

"I'd encourage regulators and utility planners to think more holistically. Are there smarter ways to do this than just throw a bunch of money at gigawatts of gas?" O'Connell said.

Utilities may be more comfortable with a "one-turbine-fits-all approach" despite advantages for ratepayers in alternatives, advocates said.

"Inertia and incentives drive utilities' tendency toward additional gas," Fitch said. "Investing in conventional generation with commodity resources has historically been the default option for these organizations, and the legacy regulatory model places all of the fuel volatility risk on ratepayers."