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Released November 13, 2019 | SUGAR LAND
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Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--The term "stranded assets" first entered the Power Industry's lexicon about 25 years ago, when advocates of electric restructuring warned that competitive markets would lower electric prices, making many existing and planned power plants uneconomic.
But it has been low-cost natural gas, not electric restructuring, that has caused so many coal-fired power plants to close over the last decade. Two recent studies from Rocky Mountain Institute (RMI) (Boulder, Colorado) predict what declining prices for renewable generation and energy-storage projects will do to gas-fired generation and gas pipelines what low-cost gas did to coal-fired generators: render them uneconomic.
It won't happen overnight and at a uniform rate across the country, RMI predicted. A future where some portion of gas generation and gas pipelines are stranded relies on continued cost improvements for renewable generation and energy storage. But a regulatory decision earlier this month by Rhode Island regulators offers a glimpse of how proposed and current gas generation could be stranded.
For several years, Invenergy LLC (Chicago, Illinois) has been trying to secure a permit to build the 900-megawatt (MW), $1.1 billion Clear River Energy Center in Rhode Island. On November 5, the Rhode Island Energy Facility Siting Board (EFSB) (Warwick, Rhode Island) denied Invenergy a permit. In its written order, the agency noted how the changes in the New England electric market have rendered the plant unnecessary.
"The proceedings in this docket took a long time," the EFSB wrote in its final decision, "and Invenergy's case was not helped by the lengthy delays. The market changes that accrued over the four forward capacity auctions conducted during the pendency of Invenergy's application undercut the credibility of Invenergy's original arguments on the issue of need."
The board noted the New England region has reduced its overall electric demand with energy-efficiency programs in recent years. That, plus the growth of renewable generation, including offshore wind generation, as well as energy storage projects, had made the Invenergy plant unnecessary.
The proposed plant had been dogged by an inability to find a local water resource for equipment cooling. For more on that, See September 28, 2016, article - Rhode Island Power Project has Plenty of Opposition, No Water.
Supply and demand fundamentals also played a role in the board's decision, which Invenergy can appeal to the Rhode Island Supreme Court. During hearings this past summer, the board wrote, experts opposing the facility "presented strong and credible evidence demonstrating that the need for this type of facility would likely decrease in the coming decade." Analytic reports presented during the proceeding "revealed plans forecasting a significant increase in renewables and a continued decrease in peak load. The Board found those reports to be reliable and credible and strong indicators of the lack of need for the Clear River Energy Center."
Regulators in other states, including California and Indiana, this year have rejected permit applications for large gas-fired generation. Sometimes the reason offered was concern about over-reliance on one type of fuel for electric generation: a spike in gas prices could undermine the economics of proposed gas-fired generators. In other cases, notably California, adding new gas generation would work against the state laws to reduce greenhouse gas emissions and increase renewable generation.
In other states, including Pennsylvania, Maryland, Arizona, Ohio, New York and Texas, large proposed gas-fired generators have been cancelled or placed on hold in recent years because of "market conditions," which could include changes in market rules or questions about a proposed plant's economic viability due to competing supply- and demand-side sources.
One RMI report, The Growing Market for Clean Energy Portfolios, said the "economics guiding U.S. investments in electricity generation have reached a historic tipping point: combinations of solar, wind, storage, efficiency and demand response are now less expensive than most proposed gas-fired power plant projects. Portfolios of these clean energy resources can provide the same energy and reliability services as traditional gas power plants--but cost less." The group assessed the existing economics of gas plants and proposed gas-fired generation.
Click on the image at right to see how continued declined in clean power generation could threaten the competitiveness of gas-fired generation.
The research and consulting group identified about 68,000 MW of proposed gas-fired power plants with a total investment value (TIV) of roughly $90 billion that could be rendered uneconomic before their owners will finish paying for them. Investors face "significant risk that proceeding with announced (gas power) projects will result in stranded costs," RMI warned. "By the mid-2030s, as clean energy prices continue to fall, building a new portfolio of clean energy resources will become less costly than continuing to pay the operating costs of a combined-cycle gas plant, and such a portfolio will provide the same level of energy, capacity and reliability services."
Click on the image at right to see RMI's assessment of the potential stranded cost risks of proposed new gas-fired generation, starting in the middle of the next decade.
In a second report, Prospects for Gas Pipelines in the Era of Clean Energy, RMI cautioned that less need for gas-fired power plants means less need for natural gas, which could undermine the economics of $30 billion in planned natural gas pipelines. RMI released both reports in September.
"Just as coal plants have retired due to competition from low-priced natural gas in the past 10 years," RMI said, "the ongoing cost declines in wind, solar and battery technologies threaten to do the same to natural gas plants by the mid-2030s." The report notes examples from several states where this trend is already on display and causing industry leaders to prioritize investment in clean energy instead of new gas infrastructure.
Britt Burt, Industrial Info's vice president of research for the global power industry, cautioned that there could be some unforeseen developments that could complicate the march to a cleaner energy future. "Regulators have started to express concerns over lithium-ion battery energy-storage systems after a battery unit in Arizona exploded and caught fire earlier this year. And while wind and solar generation remain popular with consumers, the availability of land and the support of adjacent landowners continue to be two big challenges confronting renewable energy developers."
"The electricity business certainly is changing in fundamental ways," Burt said, "and industries that serve the electricity business, such as gas pipelines, can expect to be impacted. It's a very dynamic market, with all sorts of twists and turns. Who knows--the future laid out by RMI could come to pass."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
But it has been low-cost natural gas, not electric restructuring, that has caused so many coal-fired power plants to close over the last decade. Two recent studies from Rocky Mountain Institute (RMI) (Boulder, Colorado) predict what declining prices for renewable generation and energy-storage projects will do to gas-fired generation and gas pipelines what low-cost gas did to coal-fired generators: render them uneconomic.
It won't happen overnight and at a uniform rate across the country, RMI predicted. A future where some portion of gas generation and gas pipelines are stranded relies on continued cost improvements for renewable generation and energy storage. But a regulatory decision earlier this month by Rhode Island regulators offers a glimpse of how proposed and current gas generation could be stranded.
For several years, Invenergy LLC (Chicago, Illinois) has been trying to secure a permit to build the 900-megawatt (MW), $1.1 billion Clear River Energy Center in Rhode Island. On November 5, the Rhode Island Energy Facility Siting Board (EFSB) (Warwick, Rhode Island) denied Invenergy a permit. In its written order, the agency noted how the changes in the New England electric market have rendered the plant unnecessary.
"The proceedings in this docket took a long time," the EFSB wrote in its final decision, "and Invenergy's case was not helped by the lengthy delays. The market changes that accrued over the four forward capacity auctions conducted during the pendency of Invenergy's application undercut the credibility of Invenergy's original arguments on the issue of need."
The board noted the New England region has reduced its overall electric demand with energy-efficiency programs in recent years. That, plus the growth of renewable generation, including offshore wind generation, as well as energy storage projects, had made the Invenergy plant unnecessary.
The proposed plant had been dogged by an inability to find a local water resource for equipment cooling. For more on that, See September 28, 2016, article - Rhode Island Power Project has Plenty of Opposition, No Water.
Supply and demand fundamentals also played a role in the board's decision, which Invenergy can appeal to the Rhode Island Supreme Court. During hearings this past summer, the board wrote, experts opposing the facility "presented strong and credible evidence demonstrating that the need for this type of facility would likely decrease in the coming decade." Analytic reports presented during the proceeding "revealed plans forecasting a significant increase in renewables and a continued decrease in peak load. The Board found those reports to be reliable and credible and strong indicators of the lack of need for the Clear River Energy Center."
Regulators in other states, including California and Indiana, this year have rejected permit applications for large gas-fired generation. Sometimes the reason offered was concern about over-reliance on one type of fuel for electric generation: a spike in gas prices could undermine the economics of proposed gas-fired generators. In other cases, notably California, adding new gas generation would work against the state laws to reduce greenhouse gas emissions and increase renewable generation.
In other states, including Pennsylvania, Maryland, Arizona, Ohio, New York and Texas, large proposed gas-fired generators have been cancelled or placed on hold in recent years because of "market conditions," which could include changes in market rules or questions about a proposed plant's economic viability due to competing supply- and demand-side sources.
One RMI report, The Growing Market for Clean Energy Portfolios, said the "economics guiding U.S. investments in electricity generation have reached a historic tipping point: combinations of solar, wind, storage, efficiency and demand response are now less expensive than most proposed gas-fired power plant projects. Portfolios of these clean energy resources can provide the same energy and reliability services as traditional gas power plants--but cost less." The group assessed the existing economics of gas plants and proposed gas-fired generation.
Click on the image at right to see how continued declined in clean power generation could threaten the competitiveness of gas-fired generation.The research and consulting group identified about 68,000 MW of proposed gas-fired power plants with a total investment value (TIV) of roughly $90 billion that could be rendered uneconomic before their owners will finish paying for them. Investors face "significant risk that proceeding with announced (gas power) projects will result in stranded costs," RMI warned. "By the mid-2030s, as clean energy prices continue to fall, building a new portfolio of clean energy resources will become less costly than continuing to pay the operating costs of a combined-cycle gas plant, and such a portfolio will provide the same level of energy, capacity and reliability services."
Click on the image at right to see RMI's assessment of the potential stranded cost risks of proposed new gas-fired generation, starting in the middle of the next decade.In a second report, Prospects for Gas Pipelines in the Era of Clean Energy, RMI cautioned that less need for gas-fired power plants means less need for natural gas, which could undermine the economics of $30 billion in planned natural gas pipelines. RMI released both reports in September.
"Just as coal plants have retired due to competition from low-priced natural gas in the past 10 years," RMI said, "the ongoing cost declines in wind, solar and battery technologies threaten to do the same to natural gas plants by the mid-2030s." The report notes examples from several states where this trend is already on display and causing industry leaders to prioritize investment in clean energy instead of new gas infrastructure.
Britt Burt, Industrial Info's vice president of research for the global power industry, cautioned that there could be some unforeseen developments that could complicate the march to a cleaner energy future. "Regulators have started to express concerns over lithium-ion battery energy-storage systems after a battery unit in Arizona exploded and caught fire earlier this year. And while wind and solar generation remain popular with consumers, the availability of land and the support of adjacent landowners continue to be two big challenges confronting renewable energy developers."
"The electricity business certainly is changing in fundamental ways," Burt said, "and industries that serve the electricity business, such as gas pipelines, can expect to be impacted. It's a very dynamic market, with all sorts of twists and turns. Who knows--the future laid out by RMI could come to pass."
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com/.
