The U.S. Southeast: A Hotspot For Uneconomic Fossil Power, Already Costs Consumers Millions, Risks Billions In Stranded Assets
- Oct 21, 2019 11:30 am GMT
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Several major utilities in the U.S. Southeast have recently announced goals to reach low- or zero -carbon status. But you won't exactly get whiplash trying to keep up with a wave of immediate fossil fuel shutdowns following these commitments.
The problem for consumers and the climate is that 95 percent of coal plants in the region are uneconomic compared to clean energy today, costing tens of millions of dollars annually. Of the six major power providers in the Southeast—Southern Company, Duke Energy, PPL, Dominion, Entergy, and TVA—five could replace every single megawatt of their coal-fired capacity now with cheaper renewable energy.
Meanwhile clean energy portfolios are cheaper to build than nearly all of the natural gas projects planned across the U.S., risking billions in stranded or uneconomic assets within a few decades. By embracing smart policy – and cheap renewables – utilities can save money for their consumers and their shareholders.
No country for old coal
Existing coal plants have become economically unjustifiable across the country, as shown in the recent “Coal Cost Crossover” report, which found local wind and solar could replace 74% of the existing U.S. coal fleet at an immediate savings to customers.
But this issue is especially prevalent in the Southeast U.S., where nearly all plants are identified as "substantially at risk" or "at risk."
These red circles clustered together means wind or solar could replace a coal plant’s total output at an all-in cost lower than that plant’s ongoing marginal costs. The economics are even worse in the bright red circles, where clean energy would be more than 25% cheaper than operating the coal plant. It's important to note that this analysis only includes renewable energy within 35 miles of each coal plant, requiring no new transmission infrastructure and creating the prospect of new clean energy jobs in the same community – which can equal an 8%-19% increase over the national average income.
Now consider the same view overlaid with the levelized cost of energy (LCOE), the cost per unit of energy produced over the lifetime of the power plant, for solar photovoltaics in 2018. Solar LCOE in the service territories of these Southeast U.S. utilities are among the lowest nationwide.
On decarbonization, utilities talking the talk but rarely walking the walk
Utilities are acknowledging this dynamic to an extent with their carbon reduction goals. Duke Energy, for example, said in September that it would shutter coal plants earlier than planned as part of its goal to reach net-zero carbon by 2050. Southern Company says it will reach "low- to no-carbon" in the same time frame. Nationally, 43 utilities have made carbon reduction pledges at various levels of ambition, as detailed in the Smart Electric Power Alliance’s interactive national map.
But utilities in the Southeast are taking decades to phase out coal assets while planning significant new fossil-fuel generation additions. If Duke Energy sticks to its current integrated resource plan, it will still rely on coal for 17% of its power capacity in 2033. Natural gas will account for 25% of its capacity—Duke Energy plans on adding 9,534 megawatts (MW) of new gas capacity, compared with just 3,671 MW of solar. TVA also leans heavily on gas in its plan for the next two decades, allowing for up to 17,000 MW of additions.
These plans fail to account for just how much renewable energy prices have fallen. Solar-plus-storage is now competitive with new gas-fired power plants: NV Energy in Nevada recently procured 1,200 MW solar and 580 MW of four-hour battery storage, including one project that will come in at $35 per megawatt-hour (MWh), several dollars lower than the average $41-74/MWh range for new combined cycle natural gas generation. Similarly, the Los Angeles Department of Water and Power just approved a contract for 25 years of battery-backed solar power at 3.3 cents per kilowatt-hour.
Rocky Mountain Institute (RMI) research shows portfolios of clean energy are already cheaper to build than 90% of planned gas projects nationwide, while continued clean energy cost declines will render gas plants uneconomic to operate before their expected life is over.
Meanwhile, Minneapolis-based Xcel Energy is capitalizing on these clean energy price trends, promising that its portfolio will be not "net-zero" (which could allow for offsets) or "low-carbon," but entirely carbon-free by 2050. Xcel saw an "unprecedented" response to its 2017 resource solicitation, which returned median bid prices for clean energy at some of the lowest levels yet seen, including $18.10/MWh for wind, $21/MWh for wind with battery storage, and $36/MWh for solar photovoltaic with battery storage.
In the short term, the utility is still hanging on to some coal and gas, which together will still account for 39% of its generation in 2022. But Xcel is reducing, not growing, its gas capacity in favor of renewable energy – primarily wind – which will account for 48% of its electricity in 2022 (compared with 27% in 2017).
Duke Energy and Southern Company are more indicative of the national blind faith in gas than Xcel. Utilities currently have $90 billion of planned investment in new gas-fired power plants and more than $30 billion of planned investment in proposed gas pipelines. RMI’s research forecasts this gas build-out could lead to $100 billion in stranded or uneconomic assets as clean energy coupled with storage, efficiency, and demand response keep getting cheaper over time.
Policy can help utilities leapfrog gas
Today’s status quo of investing in uneconomic gas is not the product of evil utility CEOs, but of an outdated regulatory and business model that rewards capital investment and punishes innovation and risk taking.
Utilities invest in gas for the same reason they’ve invested in coal – it’s a low-cost, mature technology that offers an opportunity to provide healthy returns for 30-50 years. But similar lower-risk profit opportunities lie with cheaper, cleaner renewables, especially if policymakers embrace the change with utilities.
Xcel CEO Ben Fowke recently articulated the utility’s “steel for fuel” strategy, where the company would replace its fossil resources (fuel) with new capital-intensive utility-owned solar and wind projects (steel), securing healthy returns while protecting consumers and the climate. Xcel’s ability to rapidly transition from coal recently received a boost when Colorado passed legislation enabling it to access low-cost financing to pay off coal assets.
These types of measures could help Duke Energy, for example, pursue an alternative integrated resource plan proposed earlier this year by the North Carolina Sustainable Energy Association. That plan would shrink the utility’s portfolio share of coal and gas to 14% in 2033 instead of 42% by scaling up renewable energy and imports to take advantage of domestic and regional low-cost clean energy resources.
There's simply no good reason for utilities in the Southeast U.S. to keep burning coal and building new gas when they have an abundance of compellingly cheap solar energy resources at hand. So what are these utilities waiting for?