A New Economic Reality: Renewable Energy Is Now Cost-Competitive With New Gas

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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 power plant projects, claims new research from independent nonprofit Rocky Mountain Institute (RMI).

According to an RMI report, The Growing Market for Clean Energy Portfolios, portfolios of these clean energy resources can provide the same energy and reliability services as traditional gas power plants; the difference is they cost less.

In turn, this new economic reality has profound implications for electricity consumers and industry investors, says RMI. Currently, there is an estimated $90 billion of planned investment in new gas-fired power plants and over $30 billion of planned investment in proposed gas pipelines. If clean energy replaces the proposed gas plants, consumers could save $29 billion, according to the report.

For investors, the report highlights the significant risk that proceeding with announced projects will result in stranded costs. 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.

These cost trends could lead to the economic retirement of plants representing over 90% of currently proposed new combined-cycle gas capacity by 2035, resulting in a significant risk of investment capital becoming stranded, according to RMI. Just as coal plants have retired due to competition from low-priced natural gas in the past 10 years, 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 says. It notes examples from Colorado, Michigan, Indiana, California and other states where this trend is already on display, causing industry leaders to prioritize investment in clean energy instead of new gas infrastructure.

A companion study by RMI examines the implications of this dynamic on the economics of new gas pipelines. This report, Prospects for Gas Pipelines in the Era of Clean Energy, shows that power plant gas use has driven the overall increase in U.S. natural gas consumption over the past 20 years – expectations that this growth will continue to underpin the economics of proposed new pipelines.

But because clean energy already outcompetes gas power plants and will soon lead to their early retirement, the underlying economic justification for new pipelines is now in question, says RMI. The report finds that over 95% of gas use in proposed gas-fired power plants across much of the Eastern U.S. could be economically offset by clean energy by 2035, reducing the use of proposed new gas pipelines by between 20% and 60%.

This reduction in gas flowing through new pipelines would, in turn, dramatically increase the costs that customers or shareholders will face in continuing to operate these pipelines. The report identifies the risk of a “death spiral,” where declining sales volume leads to higher prices, which, in turn, leads to further declines in sales. This reinforcing feedback loop would only end when pipeline projects go bankrupt and/or cease operations altogether, according to RMI.

The RMI reports highlight the fact that replacing proposed gas plants with clean energy is an opportunity to avoid 100 million tons per year of CO2 emissions, equivalent to 5% of total annual U.S. electricity sector emissions. While representing a small fraction of total grid emissions today, these avoided emissions are equivalent to over 20% of the U.S. grid’s emissions budget under 80% emissions-reduction scenarios. Thus, by cost-effectively replacing new gas with clean energy today, the country can make meaningful progress on long-term decarbonization efforts, the report says.

“The economics driving clean energy deployment are strengthening at a speed that has transformed what was a relatively abstract thought exercise only years ago to a present-day reality. This new reality requires careful analysis by policymakers and system operators who are planning for an increasingly low-carbon grid,” comments Mark Dyson, a principal at RMI and the lead author of both reports. “The inflection point we identify in this study signals a historic opportunity for the energy industry to capture the valuable benefits clean energy provides while greatly improving environmental performance and protecting customers from the risks of stranded investments.”

The reports conclude with implications and recommendations for investors, regulators and planners, suggesting ways to capture the opportunities at hand and avoid the risks of uneconomic gas investments. In particular, the reports recommend that regulators and utilities carefully assess their systems’ needs and use open, technology-neutral planning processes to guide investment in the most economic solutions.

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Doug DewitzPhil CoupeDonald OsborntoddLeAnn Pinniger Magee Recent comment authors
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Doug Dewitz
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Doug Dewitz

I hope to see the day our roof is the collector.
This of course if the politicians, bought by the utilities. will allow the ratepayer the same economic advantage of never ending fuel to profit from their investment and savings for their families.
I hope to see the day the homeowner is considered a partner in energy production and consumption, and not just the cow to be milked.

Phil Coupe
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Phil Coupe

Keller’s “even-handed financial analysis” must include 100+ years (and counting) of subsidies for fossil fuels, the enormous healthcare costs from inhaling pollution and the environmental costs of ocean warming and acidification. Modern storage technology is solving the challenge of renewable energy intermittency. Today homeowners can cost-effectively abandon the utility grid with clean tech, just as folks today can use smart phones (exorbitantly expensive 20 years ago, now ubiquitous) to abandon the once-mighty landline. For American national security, is it better to conserve our precious finite fossil fuels while pivoting to renewables, or to dig/frack, transport, refine, combust and pollute the… Read more »

Michael Keller
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The only way solar can compete is through mandates and significant subsidies, as any even-handed financial analysis consistently demonstrates. Further, it is physically impossible for solar energy to meet the inherent capacity factor of a gas turbine, which easily exceeds 90%. The night is unhelpful to solar energy.
The RMI report is propaganda and garbage.

Donald Osborn
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Donald Osborn

Solar and wind are already competing even without “subsidies”. Current subsidies only balance past AND existing massive subsidies for fossil fuels and help to speed up the transition even more. Both are a good thing.
Meanwhile solar+storage is already becoming cost competitive and the storage costs are on an even steeper cost curve than solar was. MK’s comment is uninformed and also ignores the fact that we SHOULD be incenting “goods” and not continuing to incent “bads”.

todd
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There are lots of other sources for this information; look into this…. https://www.vox.com/energy-and-environment/2018/7/13/17551878/natural-gas-markets-renewable-energy

LeAnn Pinniger Magee
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LeAnn Pinniger Magee

It’s important to read an article before commenting on it. Any industry analyst knows that the success of our RPS relies on the portfolio described: solar, storage, demand response, peak-load diversification, along with wind and geothermal. Rocky Mountain Institute, having no affiliation with political drama, has provided a well documented report. Let us know when you’ve had a chance to read it. Then, a discussion would be much more interesting…