Solar and wind plus storage to increasingly replace gas plants
A session at BNEF’s Future of Energy Summit explored how renewables paired with energy storage are successfully competing with new gas plants.
For some years it has been obvious that increasing deployment of solar and wind is cutting into the market share of coal and nuclear power plants in the United States and Europe. These plants are being increasingly retired, and a negligible number of new plants of either technology are being built in either region.
But this is only part of the story. For the past 15 years the United States in particular has put online a massive capacity of new gas plants, many of which are combined-cycle designs. These plants use fuel more efficiently than “peaker” plants, but also ramp more slowly, and as such are often meant for “mid-merit” applications.
However, according to a panel at Bloomberg New Energy Finance’s (BNEF) Future of Energy Summit in New York City, the market for new combined cycle gas plants may be coming to a close in favor of solar and wind paired with energy storage. And this may foreshadow a larger move away from gas.
“Renewables + storage is already much smarter than combined cycle,” stated Javier Cavada, the president of energy solutions at Wärtsilä. “Combined cycles have gone to half in 16, half in 17, and this year we will see if there is any crazy person going for combined cycle.”
And this is coming from a company that makes gas turbines.
California leads the way
Cavada’s statement may represent more of a European perspective. The capacity of new gas plants put online in the United States increased from 2016 to 2017, and while pv magazine was not able to find a breakdown by type of plant for the past two years, the majority of deployments have traditionally been combined cycle.
However, in California regulators are repeatedly choosing renewable energy plus storage over not only new gas plants but even continued operation of gas- and oil-fired power plants, including not only combined cycle but also single-cycle “peaker” plants. Additionally, the bids for clean energy are often coming in at lower prices than other options.
California is also helping to embolden environmentalists in other states, who are increasingly calling for utilities to deploy clean energy options instead of building new gas plants.
In an example from Michigan, the Union of Concerned Scientists has estimated that DTE Energy could save its customers $340 million by deploying clean energy instead of the new gas plant the utility is trying to build.
Financial analysis of new gas plants is required by law in Minnesota. When the net cost of a new peaker versus solar plus storage was modeled, it was found that right now solar+storage was competitive – despite limited solar radiation in the Midwestern state. These models take into account federal tax legislation, and Minnesota’s required Value of Solar Tariff (VOST). This includes a calculation for the social cost of carbon when building new fossil infrastructure.
But it is not only new gas plants that are in trouble. California has reduced the volume of natural gas that it burns as a fuel for electricity each year since 2014. Nationally 2017 saw less gas used to generate power than 2016, and while milder winter weather and more hydro generation were both significant factors, the share of wind and solar in the national generation mix also rose.
Low prices, technical advantages
This also comes amid record low bids for solar and wind plus energy storage, which are falling every year as the technology scales. However, price is not the only factor at play. While single-cycle gas plants can rapidly “ramp”, or increase and decrease their output as needed, battery storage has the ability to do this even more quickly – as the response by a Tesla battery to a generator going offline in Australia showed.
This is of critical importance as more and more wind and solar are added to the grid, as integrating high penetrations of wind and solar requires a much greater degree of flexibility from the rest of the fleet.
Additionally, batteries can not only allow renewable energy generation to become “dispatchable” – providing power on demand – but can also provide other grid support services including frequency regulation and reactive power for voltage stabilization. With the recent passage of a rule at the U.S. Federal Energy Regulatory Commission requiring grid operators to value the contributions of batteries and allow such resources to participate in wholesale markets, additional new revenue streams are opening up for batteries.
There are still many questions about exactly what role renewable energy plus storage is going to play in the larger power system, including what exactly these resources are going to replace.
“I disagree that storage is going to be disruptive for generation… it is going to be disruptive for transmission and distribution,” argued Invnergy Executive VP and Chief Development Officer Kris Zadlo on the panel.
If California is any example, it will be disruptive to both. California recently approved a clean energy project by utility Pacific Gas & Electric Company (PG&E) to replace a 40 year-old oil-fired plant in Oakland. However, PG&E’s project was competing with alternatives based on building out physical infrastructure including transmission, not other proposals for fossil fuel-fired plants. And just last month in California, we saw 20 cancellations and 23 revisions of transmissions projects – savings electricity customers $2.6 billion – due to distributed generation and efficiency.
The ability to replace not only new gas plants but also make transmission infrastructure unnecessary changes the economic threat that renewable energy represents. Lower capacity factors and/or fewer plants hits the bottom line of electricity generators and the companies that own them, but less need for transmission and distribution affects many investor-owned utilities, particularly those whose revenues have not be “decoupled” from physical investments.
However, even as renewables plus storage projects are coming in at lower prices and being chosen over new gas plants, this does not mean that wind, solar and storage will simply eliminate the need for gas, or some other form of flexible generation.