New Gas Plants Threaten Carbon Hangover Long Past Biden Deadline

(Bloomberg) -- The red-and-white flue stacks of the James M. Barry Electric Generating Station tower over the Mobile River, belching steam into the Alabama sky. The sprawling complex of coal and natural gas plants already spews more than 7.5 million metric tons of carbon dioxide-equivalent every year. Now it's about to get even bigger, with a seventh unit estimated to cost $635 million by the time it starts service in 2023.

The new gas plant, and others like it, has a 40-year lifespan. That means it will still be there in 2035, the year that President Joe Biden has promised a zero-emission electricity sector, and in 2050, the deadline set by its owner, Southern Co., to reach carbon neutrality. It could even burn past 2060, more than a century after the first coal facility opened on the site — making the complex a testament to the endurance of fossil fuels.

The decision by one of the biggest U.S. power companies to develop new fossil fuel assets is hard to square with a low-carbon future. But it’s not unusual. At least eight large utilities in the U.S. are building new gas plants right now, and another five are thinking about doing the same. That lays bare an uncomfortable truth about the sector’s commitment to fighting climate change: All those carbon-neutral pledges don’t necessarily mean quitting fossil fuels. 

“It seems like false advertising or greenwashing,” said Drew Shindell, a professor at Duke University who studies climate change. “We can’t be building gas infrastructure in the 2020s and 2030s. We need to be closing it down.”

If all of the plants under consideration moved forward, they would release nearly 35 million metric tons of carbon dioxide into the atmosphere every year, according to calculations by BloombergNEF.(1)That’s about the same as the annual tailpipe emissions of every car in Florida.

Power companies explain their commitment to gas by arguing that it’s both necessary for electric reliability and an important bridge to transition from coal to cleaner energy sources. California learned that the hard way. Over the past five years, the state retired enough gas capacity to power 6.8 million homes, and had to resort to rolling blackouts last summer when a heatwave taxed the electric grid just as solar waned at sunset.

“Cloud cover comes and goes,” said Katharine Bond, vice president of public policy and state affairs at Dominion Energy Inc. “The winds slows. We've got to have something that we can ratchet up.” Dominion, which has a 2050 net-zero pledge and is required by Virginia to be 100% carbon free by 2045, is also considering building a new natural gas-fired plant.

To offset pollution from the new facilities, Southern, Dominion and others say they plan to invest, eventually, in technology to capture and dispose of their emissions, or rework those facilities to burn cleaner fuels such as biogas or hydrogen made from renewable sources. But neither of those strategies has been implemented at scale, and both remain uneconomic at today’s prices. Notably, almost none of the companies have laid out a timeline or budget for upgrading or transitioning their gas plants. Two of them, DTE Energy Co. and Xcel Energy Inc., acknowledge that their carbon goals rely on technology that doesn’t currently exist.(2)

Southern’s new Barry plant “will support us getting to 2050” because it’s designed for both carbon capture and mixing in hydrogen, said Chief Executive Officer Tom Fanning. Right now, those technologies don’t make sense financially but “when it’s in the money, we’ll absolutely add that in.”  

It’s a worldwide phenomenon. The Spanish utility giant Iberdrola just finished building over $1.6 billion worth of gas plants in Mexico, though it vows to be carbon-neutral by 2050. French multinational electric utility Engie SA plans to build four new gas-fired plants in Belgium by 2025. Europe’s biggest utility, Enel SpA, pledged zero emissions by 2050 and also plans to build new gas plants in its home market, Italy, where they can replace coal stations. 

All of those countries have set goals to neutralize greenhouse gas by 2050, meaning that many utilities appear to be setting themselves up as potential obstacles to international climate commitments. In the U.S. alone, about 36 gigawatts of new gas generation is coming online in the next five years, according to BNEF.

That raises questions about the nation’s ability to meet its own climate targets. Fossil fuel-based electricity is responsible for 25% of U.S. greenhouse-gas emissions, second only to the transportation sector — so achieving a carbon-free economy hinges on overhauling the power sector. But of the nearly two dozen U.S. utilities aiming for net-zero carbon emissions by 2050, most aren’t on track to meet the goal, according to a September report by Deloitte LLP.

The Biden administration has indicated it's skeptically eyeing new fossil fuel plants as part of its quest to decarbonize the power sector by 2035. "There are a couple hundred natural gas units that are in the pipeline, and we have to think about those," White House National Climate Advisor Gina McCarthy said Tuesday at a Columbia University energy summit.

The electric industry is one of the easiest to clean up, thanks to the proliferation of inexpensive renewable energy. Not only has the cost of building wind, solar and batteries plunged in recent years, but those sources of energy have zero emissions and zero fuel cost: sunshine and air are free.

“Renewables are now the most competitive energy sources,” said Jim Thomson, Deloitte’s U.S. leader of power, utilities and renewables.

But cost isn’t always a prime concern for power companies. Most big utilities are regulated by state agencies that generally allow them to pass capital costs onto their customers. A natural gas plant built today will get funded by ratepayers and earn the company a return, even if it gets shuttered early or replaced by cleaner sources later. Buying power from a wind or solar developer isn’t always as attractive, while building renewables doesn’t always come naturally for utilities long accustomed to fossil fuels.

“The thing that provides the most reliability and the lowest rates for customers is not the same thing that makes the utility money,” said Charles Teplin, a principal at RMI.

Duke Energy Corp., the nation’s biggest electric utility by customer count, is weighing as many as 15 new gas units even as it commits to eliminating emissions by 2050. If the company moves forward with the buildout — which is just one of six proposals Duke has laid out — it would aim to meet its climate goals by retiring those plants after 25 years instead of 40.

That prompted Duke customers Apple, Facebook and Google to complain to regulators that the new plants could become a “financial albatross” weighing on them for decades to come.

Duke’s head of resource planning, Glen Snider, said gas is necessary to transition away from coal while greener technologies develop. “We don't want to be sitting still while we're waiting for these other technologies like batteries and small nuclear reactors,” he said, adding that new technologies also have risks that could add costs to ratepayer bills. 

U.S. utilities have so far announced plans for over $70 billion-worth of new gas-fired power plants through 2025 — almost all of which will cost more than equivalent clean energy, according to a 2019 RMI report. Those plants will be uneconomic to operate starting in about 2035 as the cost of carbon-free power keeps falling, the report said.

“Utility leaders who have experience with natural gas plants are going to find that to be their go-to reliability plan,” said Miriam Wrobel, who advises utilities as part of her work for FTI Consulting's power and renewables practice.

Many utilities say that their new gas plants could burn some hydrogen alongside natural gas to reduce emissions. The Los Angeles Department of Water and Power, the biggest municipal utility in the U.S., is building a plant in Utah that’s expected to run on 70% gas and 30% clean hydrogen when it starts up in 2025. The company says it would increase the proportion of hydrogen to 100% by 2045 to meet a California law that mandates zero-carbon electricity by that date.

While so-called green hydrogen that's produced without emissions is expected to be cheaper than natural gas by 2050 in many parts of the world, that won’t be the case in the U.S. due to the nation’s abundance of the fossil fuel, according to BNEF.  And, for now, there isn’t any pipeline infrastructure that can safely transport hydrogen from the few areas where it may be produced to the plants where it will be used. 

Meanwhile, systems that capture carbon before it’s released into the atmosphere continue to have high capital costs, despite decades of research and federal funding. Most existing U.S. projects are deployed by oil companies that sell the carbon for use in enhanced oil recovery. But barring big advances in industrial utilization of carbon — such as in the production of cement — emissions captured at a power plant would likely have little commercial value even as they generate storage and transportation costs.

Another option for meeting climate goals that utilities are increasingly turning to is simply selling the infrastructure later on to companies that haven’t pledged to cut carbon. Oil companies including BP Plc have already started offloading their most-polluting assets in a bid to meet their ambitious climate targets. Drax, a U.K. power producer that recently won 15-year agreements to build three new gas plants, has since said it may sell those facilities to meet its goal of being carbon negative by 2030.

“We call it resource shuffling,” said Leah Stokes, a professor at University of California at Santa Barbara who studies energy and climate change.

But potential buyers are already drying up as investors grow increasingly wary of fossil-fuel assets. Iberdrola, for example, has struggled to find someone to take its gas plants in Spain. Globally, the shift toward clean energy could cost companies $100 billion in stranded gas assets, according to calculations by Global Energy Monitor. 

“There is a cost to customers,” said Scotiabank utility analyst Andrew Weisel. “Customers will need to double pay for the gas plant and the renewable technology that replaces them.”

(Adds comment from White House National Climate Advisor Gina McCarthy in 12th paragraph.)

(1) Calculation uses an emissions capacity factor of 0.38.Carbon dioxide emissions per coal-fired power plant were calculated by dividing the CO2-equivalent output of all U.S. coal-fired power (1.19 billion tons) by the number of operating plants in 2018 (367). That equates to 3.25 million tons of CO2-equivalent emissions per coal facility. This is the same methodology used by the Environmental Protection Agency in itsGreenhouse Gas Equivalencies Calculator.

(2) While both companies said their climate goals rely on technology that doesn't currently exist, DTE said in a statement that its new gas plant will help the company reduce carbon emissions by replacing a coal plant that generates 70% higher emissions per kilowatt hour. Xcel emphasized that gas will help the utility shut coal plants earlier and that new, greener technologies will be brought online as they become available.

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