As the cost of renewable energy falls and global economies set their sights on achieving net zero emissions targets, recent reports have found that up to $1tn of gas assets are at risk of being stranded. We find out more.
Emitting around half the CO2 of coal fired power plants, natural gas energy generation is often considered a ‘bridge’ fuel or a ‘stepping stone’ to lowering overall greenhouse gas levels from electricity generation. In fact, the fall in CO2emissions in the US between 2007 and 2017 is largely attributed to the increased burning of gas instead of coal.
Furthermore, the flexibility of gas ‘peaker plants’, which can be turned on when extra capacity is needed, has actively helped integrate more and more intermittent renewable energy onto the grid.
However, despite gas’ role in furthering decarbonisation in the energy sector, two recent studies have shown that costs and climate change targets may well mean that gas power plants are close to reaching the end of their usefulness.
A report by Rethink Energy, published in March 2020, goes as far as to say that the falling cost of renewable energy technologies and emission reduction targets could result in investments in natural gas power generation leading to losses of $1tn by 2050.
From as early as 2025, renewables-plus-storage projects in both wind and solar will undercut the levelised cost of energy of new gas-fired power plants, starting in Europe and Asia, before spreading to gas-producing nations, it notes.
Another report, ‘Natural Gas: A Bridge to Climate Breakdown’, by US-based non-profit shareholder advocacy group As You Sow, states that there needs to be a clear end for natural gas or continued investment will contribute to distinct climate risks that threaten shareholder value.
Beginning of the end for natural gas?
Although renewable enabler, at least at first, the As You Sow report argues that investment in natural gas infrastructure, particularly in the US, is incompatible with decarbonisation goals set at the Paris Climate Accord in 2015.
“Billions of dollars are poised for investment to build natural gas infrastructure throughout the United States. This investment drive, which includes power plants and pipelines with multi-decadal lifespans, is incompatible with maintaining a safe climate and often directly at odds with a company’s own net zero emissions ambitions,” says Lila Holzman, energy program manager at As You Sow.
According to a 2019 report from Bloomberg, the top 10 energy companies are planning investments in gas approaching $1tn by 2030. It notes that if governments “make good on tough targets for cutting greenhouse gas emissions” much of that infrastructure could become abandoned.
A 2018 report by the Intergovernmental Panel on Climate Change, which declared the world had a mere 12 years to halve its emissions or fail to meet the 1.5° global warming target, has added a sense of urgency to the task at hand.
It prompted many, including heavy greenhouse gas emitters and entire countries, to set ambitious, long-term decarbonization targets. Xcel Energy, PSEG, Duke Energy, Dominion Energy, DTE, Arizona Public Service, and NRG have all set noteworthy net zero by 2050 emissions goals.
However, Holzman says there are certain policies in place that incentivise utilities to keep business as usual and to continue building big gas infrastructure.
“They can still get good returns on these projects by passing the cost onto the customer,” she explains. “We want to see more information from the companies as to why they think the levels of natural gas build-up they have planned is necessary,” she adds.
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