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U.S. Coal and Gas Investors Could Lose $68B Due to Renewables’ Rapid Rise

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  • Aug 26, 2021 5:15 am GMT
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New Technologies Could Cut Millions of Tonnes of Carbon, Save U.S. Utilities Billions of Dollars

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U.S. investors may be forced to write off $68 billion worth of coal and natural gas power plants due to the rapid rise of renewable electricity, S&P Global Market Intelligence warns in a report released earlier this month.

“Some $34 billion in spending on new natural gas-fired baseload generation, and another $34 billion invested in pollution controls meant to extend the life of older coal-fired power plants, may ultimately have to be written off by investors as stranded costs,” Utility Dive reports, citing S&P Director of Energy Research Steve Piper.

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And “if the pace of renewable energy deployment accelerates or if the U.S. approves a federal clean electricity standard, the amount of stranded power assets would likely further increase.”

That assessment landed less than a month before the U.S. House of Representatives adopted a long-debated, $1-trillion budget resolution that is widely seen as a trigger for a more ambitious, $3.5-trillion jobs and clean transition plan. “Today, action by the House of Representatives has moved the country closer to achieving a once-in-a-generation opportunity to invest in the future of our country and advance policies that put the U.S. on a path to a clean energy future,” American Clean Power Association CEO Heather Zichal said in a statement yesterday.

The S&P analysis determined that “recent investments in natural gas and coal, particularly those intended to extend the life of older coal-fired power plants, may not ultimately earn the return investors expect, due to the rise of renewable energy,” Utility Dive says. The first-of-its-kind report from S&P “estimated that both coal and natural gas-fired generation assets could become stranded as renewable energy resources grow increasingly cost competitive.”

But the vulnerabilities depend on the type of power plant involved, the industry news site explains. “Most of the U.S. coal fleet was already beyond its useful life when regulators and markets across the U.S. began to offer utilities incentives to finally take them offline,” so the financial losses relate mainly to pollution controls and other “enhancements” aimed at keeping them in service.

By contrast, “utilities have built new natural gas plants in the last five years, and this may be where the biggest risk now exists,” the news story adds, citing Piper. “In many cases, he said, the utilization and therefore value of these plants has declined faster in the wake of growing renewable generation than was anticipated even a few years ago.”

Already, Piper said, gas plants that were built to deliver steady base load power over long periods of time have been reduced to supplying peak electricity during the much shorter intervals when consumer demand is highest.

“You’re probably not going to shut down these assets because they’re so new and in good condition,” he said, “but they’re going to have to write off a lot of that value.”

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Matt Chester on Aug 26, 2021

Already, Piper said, gas plants that were built to deliver steady base load power over long periods of time have been reduced to supplying peak electricity during the much shorter intervals when consumer demand is highest.

Energy storage may be coming to fill in this gap next!

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