Houston — A Rocky Mountain Institute study concluded that by the mid-2030s, as renewable energy, storage and energy efficiency costs fall, natural gas projects now slated for construction could become uneconomic, drawing mixed responses from industry observers.
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In "The Growing Market for Clean Energy Portfolios," Charles Teplin, Mark Dyson, Alex Engel and Grant Glazer say investment through the mid-2020s in the gas-fired generation currently being built totals about $70 billion.
"However, due to dramatic price declines of wind, solar and storage (WSS) technologies, clean energy portfolios (CEPs) -- optimized combinations of WSS and demand-side management -- are now similar in cost to new gas-fired power plants," according to the report, released Monday.
"We find that CEPs are lower cost than 90% of proposed gas-fired generation at the proposed plant's in-service date," the report states. "Investment in CEPs instead of new gas capacity would save customers over $29 billion and reduce [carbon dioxide] emissions by 100 million [mt]/year -- equivalent to [about] 5% of current annual emissions from the power sector."
CAPACITY VS. ENERGY
Western Power Trading Forum Executive Director Scott Miller said the role of gas-fired generation in the western grid's future was "the crux of the discussion" at this week's Northwest and Intermountain Power Producers Coalition meeting at Mercer Island, Washington.
The Rocky Mountain Institute researchers "may be right" from the standpoint of the economics of energy, Miller said.
"The issue is that unless you make heroic assumptions about the improvement in battery storage, you are going to need natural gas capacity as a capacity element, rather than an energy element, for quite some time, but if you are not getting your energy from gas plants, how do you compensate them as a resource for balancing the system?" Miller said.
During heat waves in August and September in the Electric Reliability Council of Texas footprint, when the output from its 22-GW wind fleet fell to less than 2 GW, wholesale prices soared into quadruple digits.
ERCOT has no capacity market and instead relies on its Operating Reserve Demand Curve to create incentives for new dispatchable generation, which has been slow to respond.
"The beauty of a competitive electric power industry, particularly in Texas where that competition includes both wholesale and retail markets, is that no one small group of regulators or utility executives get to make these choices and stick regulated ratepayers with the costs of any mistakes," said Michael Giberson, a Texas Tech University associate professor of business economics. "Instead, investors outside of rate-regulated [investor-owned utilities] can assess the information available and then risk their own funds. No doubt such investors are well aware of the alternatives, including the issues raised by the Rocky Mountain Institute."
Morris Greenberg, S&P Global Platts Analytics' managing director of North American Power, raised doubts about the study's conclusions, because he is unsure how its energy efficiency costs are counted.
The study shows that "without a carbon price, wind solar and storage alone are generally not competitive with most of the [combined-cycle, gas-fired plants] under development," Greenberg said Tuesday.
"So if you undertook economic [energy efficiency] investment on a standalone basis, most of the gas capacity would be cheaper than the renewables/storage component," Greenberg said.
Jeff Schroeter, managing director of Genova Power Advisors, a generation development consultancy based in Plano, Texas, questioned whether the study considered recent improvements in combined-cycle flexibility and efficiency.
"I do agree that economies of scale on wind and solar will drive production costs down during resource-rich hours," Schroeter said Tuesday. "The question of the future is will megawatt-hour storage be cheap enough and demand response have a much greater resource share, to make them more viable than combined-cycle gas?"
A.J. Goulding, Columbia University Center on Global Energy Policy associate professor and president of Toronto-based London Economics International, suggested the Rocky Mountain Institute analysis may ask the wrong question.
"It is useful to frame the question as, 'How can we most cost-effectively use existing infrastructure, technologies and carbon emissions offset programs to reduce economy-wide emissions within a specified timeframe?'" Goulding said Tuesday. "Instead of encouraging or forbidding particular technology types, policymakers need to focus on appropriately pricing negative externalities such as carbon emissions, and allow market forces to make the determination as to what the appropriate approach is, provided that investors rather than ratepayers take on the risk of asset stranding."
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-- Edited by Mark Watson, email@example.com
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