Gas fired power plants risk becoming stranded assets

02 August 2017 Consultancy.uk

Increased investment in gas-fired power plants may be misplaced, finds a new report. Even with carbon capture technology, gas currently generates considerably more life-cycle pollution than renewables meaning its use makes it harder to attain the Paris Agreement targets, while the cost of renewables continue to fall and more effective ways to deal with intermittency continue to be developed, risking stranding invested assets in the long-term.

The Paris Agreement sets out a clear target to limit the worst effects of climate change on the global economy and social wellbeing, at well-below 2.0C. The agreement, which came into force last year, imposes various voluntary national defined contributions on countries globally, which take into account their historical emissions and economic development, among other factors.

While much can be said of the efforts of countries across the globe, the task ahead remains a difficult one, in which mistakes could be costly to businesses and investors and a costly waste of resources more generally. A new Climate Action Tracker report finds that one area in which mistakes appear to be being made is the increased reliance on gas as power source. The report, titled ‘Foot Off the Gas: Increased Reliance on Natural Gas in the Power Sector Risks an Emissions Lock-In’, looks at current trends in the market for gas as well as the reality of the targets and their incompatibility with gas.

According to the report, this could hit both the ability to make long-term returns on the investment, and the ability to invest in technology that will have a role in future generation, hindering attempts to reduce emissions in the process. The report’s warning is simple, “Massive investments in gas extraction, new pipelines and LNG ports—in addition to what is already existing and often underutilised—will divert financial resources from investments into a decarbonised power sector, and lead to the creation of stranded assets in the coming decades, constituting a major obstacle for the full decarbonisation of the electricity sector.”

A long way to go

The need to drop coal in favour coal to reduce its highly deleterious environmental profile, has given rise to increases in alternative forms of energy production. Renewables in particular have seen large scale increases, with various regions setting increasingly stringent targets for their adoption by 2030 – in the EU for instance, around 30% of all energy generation needs to stem from renewables.

Regional differences

Not all regions are investing heavily in renewables, instead opting to invest in gas, which is deemed to be cleaner than coal while also able to support energy stability due to its base-load versatility. Gas has increased as a share of total production from 15% in 1990 to 22% in 2014, while in the US gas overtook coal as the main source of energy production in 2016. India and China, meanwhile, have not invested in gas as heavily as countries like Japan, Australia and the EU, in part due to their lack of internal supply. This has seen them gain ground on Western economies like the US in terms of carbon emissions targets.

Given that the emissions from all sources needs to hit a net zero by 2050, questions are being asked about the viability of gas as a means of achieving the goal.

Gas out of sync with goals

As it stands however, the trend towards gas, or any fossil fuel source, is likely to negatively affect the goals set out in the Paris Agreement. While electricity emissions intensity has decreased since 1990, from 533 g/kWh to 519 g/kWh in 2014, the current rate of decrease is not sufficient to meet either of the Agreement’s goals. The US is set to miss even the more modest 2.0 C target, while China continues to improve its position, although it is still set (at current policy) to fall somewhere above the 1.5 C target. India has a long way to go, while the EU will need to work hard to achieve a 1.5 C contribution.

The study finds that the use of gas as part of a long-term strategy to meet the Paris Agreement goals is simply not viable. The argument for gas as a ‘bridging technology’, leveraged in part to push investment, is not sufficient to meet the goals of 2.0 C, let alone 1.5 C. The research notes that unabated natural gas fired coal plants are very much unsuited to the targets; the 1.5 C target would require that such plants are completely phased out by 2050, while for the 2 C target they would need to be phased out by around 2060.

Without abatement, such as carbon capture technologies, the wider value chain of gas production is relatively expensive in terms of emissions, “life-cycle emissions, i.e. taking into account the emissions in the fuel chain and the manufacturing of the energy conversion technology, are estimated at 410–650 gCO2eq/kWh for natural gas combined-cycle plants.” Even with abatement however, the value chain continues to be relatively polluting, ranging between 90 and 370 gCO2eq/kWh.

Gas demand slows

Energy investors looking at gas projects run considerable risks. The need for bridging base-load suppliers is increasingly shifting as new means of managing generation and demand arise. Increased focus on distributed networks, storage, as well as network integration mean that other methods will likely take care of generation intermittencies. Demand for gas is also not set to rise as quickly as anticipated across many regions to 2025.

Given the need to move away from fossil fuels as such, the considerably lower life-cycle emissions profile of renewables, most renewable technologies have ranges of between 2–180 gCO2eq/kWh, provide a much stronger long-term investment option – particularly as the price for the technology falls further.

The report concludes, “Although it is conceivable to decarbonise power from gas based on the technical approaches above, it is unlikely that there would be a role for gas with CCS in the evolving power system: the increasing market share of renewables due to their rapid cost decline will leave only a small part of the electricity supply for non-renewables in most regions. This will add further cost-pressures as the gas plant will not run at all times, called low capacity factors (the capacity factor of a power plant is the fraction of time in which the plant actually produces power).”

News

More news on