Death spiral in progress for gas generators.
Very interesting Reuters reporting.
Giant batteries that ensure stable power supply by offsetting intermittent renewable supplies are becoming cheap enough to make developers abandon scores of projects for gas-fired generation world-wide.
The long-term economics of gas-fired plants, used in Europe and some parts of the United States primarily to compensate for the intermittent nature of wind and solar power, are changing quickly, according to Reuters’ interviews with more than a dozen power plant developers, project finance bankers, analysts and consultants.
They said some battery operators are already supplying back-up power to grids at a price competitive with gas power plants, meaning gas will be used less.
The shift challenges assumptions about long-term gas demand and could mean natural gas has a smaller role in the energy transition than posited by the biggest, listed energy majors.
In the first half of the year, 68 gas power plant projects were put on hold or cancelled globally, according to data provided exclusively to Reuters by U.S.-based non-profit Global Energy Monitor.
Recent cancellations include electricity plant developer Competitive Power Ventures decision announced in October to abandon a gas plant project in New Jersey in the United States. It cited low power prices and the absence of government subsidies without giving financial detail.
British independent Carlton Power dropped plans for an 800 million pound ($997 million) gas power plant in Manchester, northern England, in 2016. Reflecting the shift in economics in favour of storage, this year it launched plans to build one of the world’s largest batteries at the site.
“In the early 1990s, we were running gas plants baseload, now they are shifting to probably 40% of the time and that’s going to drop off to 11%-15% in the next eight to 10 years,” Keith Clarke, chief executive at Carlton Power, told Reuters.
Without providing price detail, which companies say is commercially sensitive, Clarke said Carlton had struggled to finance the planned gas plant in part because of uncertainty over the revenues it would generate and the number of hours it would run.
Developers can no longer use financial modelling that assumes gas power plants are used constantly throughout their 20-year-plus lifetime, analysts said.
Instead, modellers need to predict how much gas generation is needed during times of peak demand and to compensate for the intermittency of renewable sources that are hard to anticipate.
“It does become more complex,” Nigel Scott, head of structured trade and commodity finance at Sumitomo Mitsui Banking Corporation, said.
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The cost of lithium-ion batteries has more than halved from 2016 to 2022 to $151 per kilowatt hour of battery storage, according to BloombergNEF.
At the same time, renewable generation has reached record levels. Wind and solar powered 22% of the EU’s electricity last year, almost doubling their share from 2016, and surpassing the share of gas generation for the first time, according to think tank Ember’s European Electricity Review.
“In the early years, capacity markets were dominated by fossil fuel power stations providing the flexible electricity supply,” said Simon Virley, head of energy at KPMG. Now batteries, interconnectors and consumers shifting their electricity use are also providing that flexibility, Virley added.
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Below consultant and Stanford lecturer Jonathan Koomey PhD and Amol Phadke PhD of the University of California discuss the use of gas generators on an increasingly renewable grid.
The start-up in March of UK energy company SSE’s Keadby 2, a gas power plant in eastern England, was supported by a 15-year government contract signed in 2020 to provide standby electricity services to the grid from 2023/24. The plant was financed by the company before it had the standby contract, and took four-and-a-half years to build.
The economics for such a plant would look different now, said Helen Sanders, head of corporate affairs and sustainability at SSE Thermal.
“I don’t think we’d be taking an investment decision without revenue security through some sort of mechanism now because of the inherent risk associated with revenue security,” Sanders said.
“If you’re investing in something purely based on merchant market exposure, you’re really going to have to see very, very high power prices, if you’re only running for a lower number of hours.”
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The Reuters piece goes on to tick off increasing penetration of EVs and potential for vehicle-to-grid charging capability, which will add yet another highly flexible energy storage resource to grids in coming decades.
At a certain point, we decide, or let markets decide, which gas generators still make sense as they transition more and more to backup roles. The economics of new gas becoming increasingly problematic.
Using lithium batteries for grid storage is like using a Rolls Royce for Uber deliveries and yet is very economically viable. As battery storage options specifically for grid storage are developed and mature, there is no chance fossil fuel generation options will continue to be viable.
The synergistic effects of combining wind&solar with cheap battery storage on slabs is not the only advantage: They’re waterless and easier to maintain than thermal plants.
You can see why the fossil fuel industries are scrambling to get mad* flash mobs to stop more RE and battery development wherever they can.
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*”Mad” in both the crazy and the angry sense.
Peter, you pointed out years ago that for RE to be viable, it didn’t need to be cheaper than mainstream power production, just cheaper than peaker plants.
I think the idea of very intermittently using gas plants as “backup” would be extremely expensive because gas suppliers would charge a premium for an incidental customer. You still have to do almost as much maintenance and keep a lot of staff on pay for a grid-scale thermal plant.