Recent advancements in battery storage technology now promise to accelerate the growth in renewable power, posing yet another risk to market share for natural gas in the power generation sector.
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At less than $30/MWh, the levelized costs of wind and solar have fallen dramatically in recent years as both technologies continue to further undercut even the cheapest gas-fired generation.
In independent system operator territories across the US, wind in particular has become a major threat to gas as a cleaner, greener alternative to retiring coal and nuclear generation. The recent inroads made by wind, though, have simultaneously created a supporting role for gas as a backup fuel – helping to balance the growing intermittency of renewable power.
For years, fast-ramping batteries capable of replacing gas as a grid-balancing resource have remained out of the money. More recently, though, rapid advances in lithium-ion storage technology have dramatically altered the green-energy landscape.
According to a recent analysis of global battery-storage projects by Bloomberg NEF, lithium ion batteries are now undercutting gas peaking plants in much of the world. At an all-in cost of $132/MWh, a four-hour utility scale battery is now priced below the global gas-peaker plant average at $173/MWh.
Even within the US, where gas prices are significantly lower than elsewhere, batteries are now cost competitive with gas-fired generation – thanks in part to state-level clean energy policies and federal tax credits. Both have boosted the competitiveness of renewables in recent years and now threaten to undermine the economic viability of new gas-fired power investments, says Morris Greenberg, S&P Global Platts Analytics senior manager for North American Power.
In 2020 alone, the US nearly doubled its annual battery-storage deployments, adding 1,765 MW as developers moved quickly to meet demand for large-scale projects.
Last year's expansion, led in large part by installations in California, included roughly 700 MW of grid-level battery storage, making it a record year for US grid-level deployments, according to recent data published by S&P Global Platts Analytics.
Thirty-four US states now have operational utility battery storage, according to American Clean Power, with California leading at 876 MW, followed by Texas at 134 MW and Illinois with 133 MW.
By 2025, Platts Analytics sees US battery storage capacity approaching 18 GW, with federal and state-level policies playing a significant role in the market's growth.
In the US, development activity for gas-fired generation is now focused mostly on combined-cycle unit construction aimed at replacing baseload generation from retiring coal, and in some cases, older nuclear. Currently, of the 20 GW of gas capacity under construction or permitted, less than 3 GW are gas peakers, Greenberg says.
In California, state policy pressure has not only stymied the development of newbuild gas peakers but has also cut into existing gas use, according to S&P Global Market Intelligence analyst Alex Cook.
The state's 2050 carbon-neutral grid mandate has already skewed investment heavily toward other assets such as solar, storage hybrids, or standalone battery storage. Even in the state's regulatory response to widespread blackouts, greenfield gas plants have been effectively excluded from providing service, Cook says.
In states such as California, where renewable portfolio standards are in place, future grid-balancing projects are likely to favor battery storage over gas-peaker plants. Even in states with less aggressive standards, the falling cost of lithium ion has still bolstered the outlook for battery-stored power.
"We're already seeing that in our forecast, as we update our assumptions on the cost of battery storage," Cook said. In some states, "it's not so much a policy risk as it is just a competition between different asset classes to fulfill the same service."
Opportunities for gas
Assuming the current gas price outlook remains constant, there does remain some potential to build gas generation in other US states. Florida is one possibility. According to Cook, the state's integrated resource plans – and a utility's ability to secure approval to pass through costs to ratepayers – could spur future investment in gas as a grid-balancing tool.
One broad region of the US where analysts forecast possible future growth for gas peakers is in the West. Some gas utilities there have recently invested in gas-storage capacity intended to complement growing intermittent power generation from renewables like wind and solar.
In 2019, Northwest Natural Holding Co. completed its expansion of the Mist Underground Natural Gas Storage Facility in Columbia County, Oregon, helping Portland General Electric to manage volatility on the grid and integrate renewable power generation. The 4 Bcf storage addition brought the facility's total inventory capacity to 20 Bcf and was the only new gas storage reservoir to come online that year, according to data from the US Energy Information Administration.
The following year, gas midstream and marketing company Spire proposed a substantial investment in its own Wyoming storage facilities with expansions and upgrades designed to meet the needs of the Western energy markets – now more reliant on intermittent renewable power. Upon regulatory approval, Spire hopes to complete construction of the project by autumn 2023 with service startup targeted for summer 2024.
Following last winter's severe storms, reliable gas access has been at the crux of energy system discussions, and utilities — particularly those with storage assets available — have emphasized the importance of being able to draw on stored gas to keep the grid operating.
Combined-cycle gas dominance
To truly compete with gas in the power generation markets, though, battery storage must be capable of discharging for longer than four hours – a capability that has yet to be developed at a competitive cost.
"Lithium-ion battery storage can already beat gas peaking plants on costs for up to two or three hours of daily power balancing," Tifenn Brandily, BloombergNEF associate, said in a recent interview. Beyond that time frame, though, battery technology just isn't there yet, Brandily said.
Flow batteries, a new entrant into the storage market, are one potential alternative. The technology harnesses electrochemical energy generated by flowing chemicals dissolved in liquid across separate sides of a central membrane. Flow batteries offer the advantage of long cycle-life and a long operational lifetime but have yet to compete effectively with lithium ion's low, and rapidly falling cost.
In the utility-scale energy storage market, seasonal and even just diurnal power-balancing solutions still need to be developed to meet low-carbon energy targets in a cost-effective way, Brandily says.
"Until then, flexible gas-fired power will have a key role to play."
According to Platts Analytics, gas will remain a critical, baseload fuel in the US power generation sector through at least mid-century. A current reference-case forecast shows gas generating an estimated 110,000 aMW monthly in 2050, compared to about 171,000 aMW monthly, in 2020.