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Holes remain in US power companies' plans to achieve net-zero carbon emissions

Officials with the major U.S. energy companies that have set ambitious net-zero emissions or zero-carbon power supply targets say they do not know precisely how their companies will achieve the last "20%" of their goal by 2050.

Instead, they say crossing the finish line will require significant future advances in, and a massive scaling up of, technologies such as carbon capture and sequestration, advanced nuclear reactors and battery storage — primarily with the help of the federal government — plus yet-to-be-defined emissions offsets for any remaining natural gas plants.

"The last 20% is the part everybody's trying to figure out how to get to," said Nancy Sutley, the Los Angeles Department of Water and Power's chief sustainability officer and the former head of the White House Council on Environmental Quality under the Obama administration.

Los Angeles Mayor Eric Garcetti has set a net-zero goal by 2050 for the city, which includes a zero-carbon electric grid for LADWP. The National Renewable Energy Laboratory is expected to complete a study of LADWP's options by the end of 2020, said Sutley.

In the last year or so, at least eight U.S.-based electric companies announced either net-zero emissions or zero-carbon power supply goals by 2050 or earlier. In addition to LADWP, the companies are Xcel Energy Inc., Duke Energy Corp., Public Service Co. of New Mexico, Public Service Enterprise Group Inc.'s PSEG Power LLC, Avangrid Inc., NRG Energy Inc., and DTE Energy Co.'s DTE Electric Co.

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The net-zero-by-2050 goal aligns with projections by the Intergovernmental Panel on Climate Change, which found limiting global warming to 1.5 degrees Celsius relative to pre-industrial levels will require achieving worldwide net-zero emissions around the year 2050.

Companies are also coming under pressure from their investors to review their climate risks and opportunities and develop a related plan for addressing those issues, including through science-based targets. For example, NRG, Xcel and Duke are among the companies that investors have targeted in the Climate Action 100+ initiative organized by Ceres.

Natural gas investments could complicate matters

To achieve the bulk of their zero-carbon goals, many of the eight companies are retiring coal-fired plants, investing in wind and solar projects and maneuvering to keep nuclear projects online.

But some of those companies are investing heavily in natural gas power plants and infrastructure to replace the coal-fired generation, a move that Henrik Jeppesen, head of North American investor outreach at the think tank Carbon Tracker Initiative, said could complicate matters.

If an electric company is "investing in and adding new carbon generation to that overall mix, that overall will mean that they will put themselves in a harder position to meet intensity targets," Jeppesen said.

Duke, which is one of the top carbon-emitting utilities in the U.S., supports adding carbon capture at the company's remaining gas plants by 2050 as part of its net-zero goal. But the U.S. power sector has yet to widely embrace the technology amid perceived financial risks, including a lack of mandatory carbon pricing.

There are 19 large-scale carbon capture and sequestration projects globally, only two of which are at power plants, said Lee Beck, senior adviser for advocacy and communications at the Global CCS Institute. Although the technology exists to capture carbon from gas plants, "it just hasn't been deployed" on a wide scale, she added.

Without broader CCS deployment, U.S. utilities could be challenged in achieving net-zero or no carbon emissions.

According to S&P Global Market Intelligence data as of Oct. 28, eight power companies with carbon-free goals are planning to add a combined total of 10,082 MW of generation and electric storage capacity through 2030, nearly half of which will be natural gas-fired generation. The second-largest chunk of total planned new capacity will be wind-powered, with Xcel accounting for the majority. Duke has the largest amount of solar generation planned of the group, with about 1,185 MW in the pipeline for the utility.

Those figures do not include some planned capacity additions that are in the early stages of development, including DTE's intention to add 1,320 MW of wind energy, 536 MW of solar power and 90 MW of hydroelectric generation by 2030, while retiring a combined 3,078 MW of capacity across those years that have not yet received regulatory approvals.

But a combined total of only 141 MW of new battery storage capacity is planned, an indication that, at least for now, the eight companies are not betting heavily on that resource to hit their interim targets.

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Options for cutting emissions from gas-fired power plants could include CCS and accelerated depreciation to enable faster plant retirements. Utilities could also take a page from their playbook for coal-fired retirements and seek to recover their gas investments by selling bonds that are paid off by ratepayers, a process known as securitization.

But some utility officials say they need natural gas-fired power plants until better technologies become available in order to maintain reliability. "I can't move away from coal and not have, with today's technology, something to make sure we ensure reliability," Xcel President and CEO Ben Fowke said in an interview. "Renewables paired with batteries is not going to get us there."

However, investors are becoming increasingly concerned about natural gas investments, said Ceres Senior Director of Electric Power Dan Bakal.

"The investors we are working with are definitely concerned about what the role of natural gas is, how much investment should go into it, and what really are the risks of stranded assets in over investments in natural gas," Bakal said. And investors are increasingly asking companies to explain their assumptions around natural gas and the role it is going to play, he said.

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One way to track the direction a company is headed in the decarbonization landscape is by calculating its emissions intensity rate by dividing the company's total generation output by its total emissions, Jeppesen said. But he cautioned that the figures can also sometimes fluctuate year-over-year due to changes in weather patterns.

PSEG's emissions intensity rate climbed from 213 in 2017 to 225 in 2018, according to an analysis of answers PSEG provided to a climate change survey by CDP in 2018 and 2019. PSEG also reported to CDP that its natural gas generation nameplate capacity increased by more than 4,500 MW in 2018 over the prior year and its carbon dioxide-equivalent emissions from gas-fired projects increased by 1.36 million metric tons over that same period.

PSEG has indicated it plans to release its first climate change report on its website in 2020, which will include an analysis of its transition path options. PSEG CEO Ralph Izzo in an interview indicated the utility is not currently building any additional natural gas plants, and the company will retire its last coal plant in June 2021.

Nuclear another risk

Utilities including Duke and PSEG are banking on the continued operation of their nuclear plants to decarbonize.

Duke has 11,000 MW of nuclear capacity, representing the largest regulated nuclear fleet in the U.S. In September, the company announced it will seek to relicense its entire nuclear fleet so it could operate those plants through 2050. Duke's nuclear plants are located in regulated markets in the Carolinas, meaning they do not face the same market pressures as those in competitive markets.

But PSEG has a rougher road ahead. Although the company's nuclear plants in New Jersey receive state-issued zero-emission certificates, the PJM Interconnection has proposed changes to its capacity markets that would essentially prevent state-subsidized energy resources from bidding into that market at less than their unsubsidized operating costs. However, Izzo said he believes FERC will try to find a way to allow states to come up with mechanisms for preserving desired assets, such as reserving nuclear capacity for use as part of a state’s provider of last resort mechanism.

But both PSEG and Duke say the U.S. must do more than preserve existing nuclear plants to achieve net-zero emissions by 2050.

"We're going to need some kind of new technology," Duke's vice president of state energy policy, Diane Denton, said at an industry event in October. "It might be advanced nuclear, it might be carbon capture and storage that we would put on natural gas, it could be batteries that can move power from August to January. But whatever it is, we need a resource that emits zero emissions but is able to follow the load throughout the day."

The role of the federal government, policies

Officials with some of the power companies suggested a federal price on carbon and increased federal research and development will be needed to make CCS, battery and other technologies viable options for decarbonizing the last 20% of their companies' emissions.

"Until you start getting a clear and consistent ... price on carbon, you're not going to see the market react in any kind of an efficient way," Izzo said. "You're going to get the kind of absurd behavior that we're seeing now, which is this patchwork quilt of state-by-state solutions with implied cost of carbon removal that ranges from low single digits to high triple digits per ton of carbon removed. That's just not a viable and sustainable system going forward."

When it comes to advancing needed technologies, the companies are both counting on help from federal R&D programs, testing technologies in their own facilities, and participating in federal and local pilot projects.

With storage, the kind of breakthrough that utilities need is "the kind of thing that the federal government should be putting resources into," Vicky Sullivan, director of environmental and energy policy at Duke, told S&P Global Market Intelligence.

Duke plans to invest $500 million over the next 15 years in energy storage and has been testing battery storage at some of its own facilities. In addition, the company is an industry partner in the Consortium for Advanced Simulation of Light Water Reactors project at the Oak Ridge National Laboratory, which develops modeling and simulation technologies to enhance nuclear reactor performance.

The North Carolina-based utility is also hosting a membrane-based CCS project at its East Bend coal-fired plant in Kentucky. The U.S. Department of Energy-backed project, which Duke is partnering on along with the University of Kentucky, seeks to demonstrate an algae-based system for carbon mitigation at coal plants.

"We are testing a lot of these technologies … we are doing our part there," Sullivan said.

Other utilities with net-zero goals are also involved in CCS research. The DOE helped fund a joint venture between NRG and JX Nippon Oil & Gas Exploration Corp. to build the world's largest carbon capture facility at the WA Parish coal-fired plant in Texas. The Petra Nova project, which finished construction in January 2017, is designed to capture 90% of the CO2 from a 240-MW slipstream of flue gas at one of the Parish plant's existing coal-fired units.

And DTE, which is a member of the DOE-funded Midwest Regional Carbon Sequestration Partnership, is in the early stages of investing in carbon capture utilization and storage projects broadly, company spokesman Eric Younan said.

Turning to other technologies, Xcel is among three utilities that will be rolling out DOE-funded projects in the next few years to demonstrate making hydrogen from water on an industrial scale at nuclear power plants. Hydrogen, which is contained in water, natural gas and other products, can power cars and store energy for later use all without producing emissions.

Offsets remain a question market

One area where the eight utilities seemed least clear is potential reliance on carbon offsets. A couple of executives mentioned reforestation as an option, but Izzo said utilities should be able to count energy efficiency gains by their customers and investments in electric vehicle infrastructure as offsets in the future.

"Right now we're not looking at offsets from the point of view of planting trees in some developing nation or any of that sort [of thing]," Izzo said. "But ... if we reduce our methane emissions, if we are successful with energy efficiency, if we help electrify transportation, shouldn't that count for the carbon reductions that go against the carbon emissions if the technology isn't there to capture our [greenhouse gases]?"

PSEG's net-zero goal only pertains to its power generation subsidiary, meaning emissions cuts from customer efficiency measures and reducing methane leakage from its gas pipelines do not count toward the 2050 target. Similarly, DTE's net-zero target only applies to its DTE Electric subsidiary.