Vistra Corp. owns 36 natural-gas power plants, one of America’s largest fleets. It doesn’t plan to buy or build any more.
Instead, Vistra intends to invest more than $1 billion in solar farms and battery storage units in Texas and California as it tries to transform its business to survive in an electricity industry being reshaped by new technology.
“I’m hellbent on not becoming the next Blockbuster Video, ” said Vistra Chief Executive Curt Morgan. “I’m not going to sit back and watch this legacy business dwindle and not participate.”
A decade ago, natural gas displaced coal as America’s top electric-power source, as fracking unlocked cheap quantities of the fuel. Now, in quick succession, natural gas finds itself threatened with the same kind of disruption, only this time from cost-effective batteries charged with wind and solar energy.
Natural-gas-fired electricity represented 38% of U.S. generation in 2019, according to the U.S. Energy Information Administration, or EIA, and it supplies round-the-clock electricity as well as bursts during peak demand. Wind and solar generators have gained substantial market share, and as battery costs fall, batteries paired with that green power are beginning to step into those roles by storing inexpensive green energy and discharging it after the sun falls or the wind dies.
Battery storage remains less than 1% of America’s electricity market and so far draws power principally from solar generators, whose output is fairly predictable and easier to augment with storage. But the combination of batteries and renewable energy is threatening to upend billions of dollars in natural-gas investments, raising concerns about whether power plants built in the past 10 years—financed with the expectation that they would run for decades—will become “stranded assets,” facilities that retire before they pay for themselves.
Across the country, much of the growth in renewable energy to date has been driven by state mandates that have required utilities to procure certain amounts of green power, and by federal tax incentives that have made wind and solar more economically competitive.
But renewables have become increasingly cost-competitive without subsidies in recent years, spurring more companies to voluntarily cut carbon emissions by investing in wind and solar power at the expense of that generated from fossil fuels. And the specter of more state and federal regulations to address climate change is accelerating the trend.
President Biden is proposing to extend renewable-energy tax credits to stand-alone battery projects—installations that aren’t part of a generating facility—as part of his $2.3 trillion infrastructure plan, which could add fuel to an already booming market for energy storage.
Still, as batteries help wind and solar displace traditional power sources, some investors view the projects with caution, noting that they, too, could become victims of disruption in coming years, if still-other technological advances yield better ways to store energy.
And while batteries can provide stored power when other sources are down, most current batteries can deliver power only for several hours before needing to recharge. That makes them nearly useless during extended outages.
Gas vs. green
Gas-fired power plants are already struggling to compete with wind and solar farms. Duke Energy Corp. , a utility company based in Charlotte, N.C., that supplies electricity and natural gas in parts of seven states, is still looking to build additional gas-fired power plants. But it has started to rethink its financial calculus to reflect that the plants might need to pay for themselves sooner, because they might not be able to operate for as long.
Duke has proposed building as much as 9,600 megawatts of new gas-fired capacity in the Carolinas to help meet demand as it retires coal plants and invests more heavily in solar and wind power. But in regulatory filings, the company has acknowledged that any new gas plants could become stranded assets, failing to pay for themselves as technology advances. A megawatt of electricity can power about 200 homes, according to the Electric Reliability Council of Texas, which operates the state’s power grid. Some other estimates peg this number higher.
To remedy that, Duke in public filings said it is considering shortening the plants’ expected lifespan from about 40 years to 25 years and recouping costs using accelerated depreciation, an accounting measure that would let the company write off more expenses earlier in the plants’ lives. It may also consider eventually converting the plants to run on hydrogen, which doesn’t result in carbon emissions when burned.https://tpc.googlesyndication.com/safeframe/1-0-38/html/container.html
“This is one risk that we’re looking at, but we need to look at that risk across every technology decision we make,” said Glen Snider, Duke’s director of integrated resource planning, noting that all power investments face potential disruption.
More than 60,000 megawatts of gas-fired capacity came online in the U.S. since 2014, according to the EIA. Like coal plants, many of which have been forced to close early, gas plants were financed with the expectation that they would operate for decades.
Stranded costs resulting from coal retirements are typically modest because many of the plants were built decades ago and nearing the end of their useful lives, according to Moody’s Investors Service. Much of the nation’s gas fleet, on the other hand, is relatively young, increasing the potential for stranded costs if widespread closures occur within the next two decades.
Gas plants that supply power throughout the day face the biggest risk of displacement. Such “baseload” plants typically need to run at 60% to 80% capacity to be economically viable, making them vulnerable as batteries help fill gaps in power supplied by solar and wind farms.
Today, such plants average 60% capacity in the U.S., according to IHS Markit, a data and analytics firm. By the end of the decade, the firm expects that average to fall to 50%, raising the prospect of bankruptcy and restructuring for the lowest performers.
“They are under threat from tons of renewables,” said Sam Huntington, IHS Markit’s associate director for gas, power and energy futures. “It’s just coal repeating itself.”
It took only a few years for inexpensive fracked gas to begin displacing coal used in power generation. Between 2011, shortly after the start of the fracking boom, and 2020, more than 100 coal plants with 95,000 megawatts of capacity were closed or converted to run on gas, according to the EIA. An additional 25,000 megawatts are slated to close by 2025.
Grid-scale batteries
Most grid-scale batteries are made of lithium ion, the same sort of technology that powers electric vehicles. They look similar to large shipping containers and are often grouped together to create arrays capable of providing large amounts of power. Some are attached to renewable energy sources, while others stand alone and draw power from the grid.
Batteries are most often paired with solar farms, rather than wind farms, because of their power’s predictability and because it is easier to secure federal tax credits for that pairing. Some companies are developing wind farms paired with batteries, and the market is expected to grow as technology costs fall.
Already, the cost of discharging a 100-megawatt battery with a two-hour power supply is roughly on par with the cost of generating electricity from the special power plants that operate during peak hours. Such batteries can discharge for as little as $140 a megawatt-hour, while the lowest-cost “peaker” plants—which fire up on demand when supplies are scarce—generate at $151 a megawatt-hour, according to investment bank Lazard.
Elon Musk is getting into the Texas power market, with previously unrevealed construction of a gigantic battery connected to an ailing electric grid that nearly collapsed last month. The move marks Tesla Inc.’s first major foray into the epicenter of the U.S. energy economy.
A Tesla subsidiary registered as Gambit Energy Storage LLC is quietly building a more than 100 megawatt energy storage project in Angleton, Texas, a town roughly 40 miles south of Houston. A battery that size could power about 20,000 homes on a hot summer day. Workers at the site kept equipment under cover and discouraged onlookers, but a Tesla logo could be seen on a worker’s hard hat and public documents helped confirm the company’s role.
“some investors view the projects with caution, noting that they, too, could become victims of disruption in coming years”
Yes, it is a danger. What if increased lithium battery storage, allowing most of the grid to be powered by renewables, giving us time to further develop other technologies, turns out not to be The One? Worse, what if she…er, it, leads down a path to save the world, only to turn out to be less profitable than coal, oil, gas, and nukes? Wouldn’t that be horrible? Why bother?
“But [Duke] has started to rethink its financial calculus to reflect that the plants might need to pay for themselves sooner, because they might not be able to operate for as long.”
Yes, whether it’s from takeover by another energy source (that we could be building instead but won’t—not in the mission statement) or collapse of global society into post-apocalyptic chaos, it’s important to grab all the money while there is money, because, um…the Golden Rule says He who dies with the most gold wins.
“Duke has proposed building as much as 9,600 megawatts of new gas-fired capacity in the Carolinas to help meet demand as it retires coal plants and invests more heavily in solar and wind power. But in regulatory filings, the company has acknowledged that any new gas plants could become stranded assets, failing to pay for themselves as technology advances.”
So Duke plans to deal with the problem by building more of what is currently destroying the world and then covering their asses with a bookkeeping trick—a further move away from reality, paying themselves and their funders faster so they can all get out before sticking the public with the bill and the pollution… but wait a minute. Wind, solar and storage can be built in a fraction of the time it takes to build gas generators. The main reason to keep building gas is…what, exactly? Habit? Bigmanlymachine bias in the system, infecting investors, workers, utility, government?
If they can’t adjust to ecological reality (anathema, I know, for conservatives) couldn’t they at least try to adjust to new financial realities? Or does the knowledge that the foundation of those financial realities are ecological ruin it for them? An I know it’s the right thing to do and will still make us money but I won’t give Her the satisfaction sort of thing? What a tragically, pathetically sick and twisted system we have. And the people who know better—or at least should—aren’t willing to speak up and stop it. Why do we continue to tolerate that while civilization implodes?