Utilities and independent power producers (IPPs) plan to invest $110 billion through 2025 to build new, natural gas-fired power plants. They, their shareholders and society would be better served were that capital invested in new, distributed, renewable power generation and distributed energy resources (DERs), including utility-customer demand response and energy efficiency programs, the Rocky Mountain Institute says.
Analyzing four proposed natural gas power plants in different regions of the U.S., RMI then compared their economics with that of equivalent, region-specific portfolios of distributed, renewable energy and distributed energy resources that could provide the same services.
The clean energy portfolios would cost anywhere from eight to 60 percent less than the corresponding, proposed natural gas power plants in all but one case. For the one exception, RMI analysts determined that the net cost of the optimized clean energy portfolio would cost approximately six percent more than the proposed natural gas power plant.
Renewables, DERs Could Strand Natural Gas Generation
“Renewables and DERs are out-competing and beginning to capture market share from natural gas-fired generation in many parts of the country, including both peaking capacity as well as higher-efficiency, combined-cycle plants,” said Mark Dyson, a principal at RMI and one of the study’s co-authors.
“The consequences of continuing a business-as-usual approach — building new gas generation when clean energy technologies are increasingly winning the day — promises to negatively impact customers, investors, and the environment through higher energy costs, the risk of stranded assets and greater carbon and air emissions.”
Looking forward, RMI analysts factored in forecast reductions in distributed solar and a $7.50 per ton price on carbon dioxide emissions. Optimized clean energy portfolios proved lower in risk, as well as lower in cost, than the proposed natural gas power plants in all four cases.
RMI then expanded the study’s perspective by carrying out a scenario analysis in which portfolios of renewable and distributed energy resources capable of providing equivalent energy services, or better. Using conservative estimates for both renewable and DER adoption, investing to build out the renewable-DER capacity would “unlock a $350 billion market for renewables and DERs through 2030,” according to the report, The Economics of Clean Energy Portfolios. Furthermore, some 3.5 billion tons of climate-warming carbon dioxide emissions would be avoided.
Need for Open, More Competitive Power Markets
The results of RMI’s study highlight just how far and fast the economics of renewable energy and distributed, clean energy systems and technology have improved over a short period of time. But what would it take to create a market environment that would lead utilities, IPPs, banks and investment groups to make a wholesale shift away from tried, proven and fast growing natural gas power generation, especially given today’s historically low prices?
“It really depends on where you are with respect to the type of market organization we have here in the U.S.,” Dyson said in an interview.
“Essentially, what needs to happen [in deregulated markets] is to open them up so that developers of distributed energy resources of all types — batteries, demand response, energy efficiency, etc. — can compete with natural gas generation. It’s not straightforward at present. The rules artificially prohibit newer technologies that can provide the same services from doing so.”
Turning to vertically integrated power markets, Dyson explained that “utilities typically use pretty standard software to evaluate investments in new generation resources. Those typically aren’t very good at present with regard to assessing the capabilities or economics of renewables plus batteries plus demand response and energy efficiency.”
Furthermore, there’s the issue of disincentives. Utilities would not own some of those renewable energy and distributed energy resources, Dyson pointed out. They would be paying IPPs and service providers for them.
“That doesn’t generate as high a return for utilities and their shareholders,” he concluded.