Clean energy versus gas
Solar and energy storage, either on their own or as part of clean energy portfolios, are showing that they can compete with natural gas in the United States. But will regulators wake up to this reality before half a trillion dollars worth of future stranded assets are built?
In October 2017, NRG asked California regulators to withdraw consideration of its 262 MW Puente Gas plant in Southern California’s Ventura County. The project was controversial, as it had been planned for a low-income area, but that was not what made this project historic.
Due to two other generators going offline, there was a need for capacity in the area, which the Puente plant would have addressed. Instead, utility Southern California Edison put forward an alternate plan involving transmission upgrades, energy storage, and renewable energy, which California Public Utilities Commission (CPUC) found could meet these needs. And this led to Puente becoming the first gas plant in the state’s history to be rejected by CPUC.
It would not be the last time decision-makers in California passed over gas infrastructure in favor of clean energy. In the past year, two upgrades to gas power plants have been cancelled, and three existing gas plants have lost lucrative contracts, without which they will likely be shut down.
Additionally, in March 2018, the state’s grid operator approved a plan by Pacific Gas and Electric Company involving a combination of grid upgrades, renewable energy, and storage instead of renewing the contract for a petroleum-fired plant near Oakland. This is not to mention the roughly 100 MW of battery storage that CPUC approved in May 2016 to make up for unavailable gas generation due to the Aliso Canyon leak.
Neither is this limited to California. In February, utility Arizona Public Service (APS) announced that it will sign contracts involving 50 MW of battery storage and 65 MW of solar, as the result of an all-source solicitation wherein the solar+storage project beat out gas peaking plants to meet demand between 3:00 p.m. and 8:00 p.m. in the summer.What all of these examples point to is clean energy – combinations of solar, wind, batteries, and other non-fossil resources – outcompeting both new gas projects and in some cases existing plants.
Crisis in conventional generation
Conventional generation is in crisis in the United States. This started with coal plants, which have been under multiple market pressures. Between cheap gas from hydraulic fracturing bringing down wholesale power prices and the cost of complying with new emissions regulations, coal has simply been unable to compete with a massive build-out of new gas projects. And with U.S. electricity demand stagnating since the 2008 recession, generation has become a zero-sum game.
The result is that 37 GW of mostly old and uncompetitive coal plants retired between 2010 and the end of 2015. In a few regions such as California, Texas, and the Plains States, solar and wind have also contributed to even lower power prices, however in most regions there is too little of either for much of an effect to be seen, with gas already crushing prices.
However, in the last few years a new trend has emerged. Solar, wind, and battery storage are representing a new threat not just to coal, but to other forms of generation including gas plants.
California is one of the regions on the tip of that spear, and this can be seen clearly in statistics. The output of gas power plants on the California Independent System Operator (CAISO) grid has been falling every year since 2014, and represented only 28% of generation in 2017. The capacity of gas plants in CAISO has also fallen each year, with the retirement of less efficient combustion turbine peakers more than making up for a modest increase in new combined cycle units. As all of this is happening, renewables are continuing to boom, with solar alone reaching 19% of California’s power supply in 2017.
Economic and technical factors
The vast majority of the wind and solar that has gone online, both in California and nationally, has been supported by mandates and incentives, most notably renewable portfolio standards. But solar and wind are now competing directly in the market, and their low prices have led to new market drivers, such as increasing corporate procurement of renewable energy, contracts signed under the Public Utilities Regulatory Policy Act of 1978 (PURPA), and many of the nation’s largest utilities voluntarily procuring and/ or building large-scale solar and wind projects.
Just as gas outcompeted coal, large-scale solar and wind are now outcompeting gas in the energy market, with contract prices as low as $30/MWh for solar and below $20/MWh for wind, and solar project bids as low as $22/MWh. Additionally, once solar or wind plants are built they will always out-bid any thermal energy source, which has to buy fuel in wholesale power markets, as renewables have near-zero marginal cost.
However, gas plants do not only supply energy. Many gas plants, especially “peaker” plants supply flexible capacity to the grid, and for this, intermittent solar and wind are not in an equal position to compete.
However, energy storage and other resources can supply this flexible capacity when paired with renewable generation. Earlier this year, Colorado-based research organization Rocky Mountain Institute (RMI) published The Economics of Clean Energy Portfolios, an economic analysis of clean energy portfolios including renewable energy and batteries, and also such resources as demand response and energy efficiency, combined with system upgrades in order to compete with gas plants.
The findings of this report were stunning: In three out of four case studies from across the United States, these clean energy portfolios took care of the requirements that gas plants had previously met, at a lower cost. And in the fourth case, the cost was only slightly higher, reinforcing the findings of decision-makers in California.