Utility giant Dominion Energy and gas turbine maker General Electric reportedly agree on a startling fact: there is no market for new baseload gas plants.
As recently as two years ago, Dominion’s utility subsidiary in Virginia had as much as 8,000 megawatts (MW) of new combined cycle gas plants on the drawing board. Combined cycle plants, designed to run most of the time, have become the dominant source of power generation in Virginia.
This year, new combined cycle plants are noticeably absent from Dominion Energy Virginia’s Integrated Resource Plan. Proposed instead are a series of smaller, peak-serving combustion turbines. Although the utility is proposing a bunch of them, they will have to compete with increasingly-competitive storage options for regulatory approval.
It’s not just Virginia. According to the Forbesarticle linked above, Dominion Energy has no plans to build any more combined cycle plants anywhere, due to competition from wind and solar.
Other utilities are also losing interest in combined cycle gas pants, as GE has learned to its chagrin. GE is cutting 12,000 jobs in its GE Power unit, says Forbes.
A new study from the Rocky Mountain Institute (RMI) shows why utilities are smart to avoid building new gas plants. RMI says that as early as 2026, cost declines for wind and solar will make it more expensive to operate natural gas infrastructure than to abandon it and replace it with new wind and solar facilities. When that happens, gas plant owners will be left with stranded assets.
Even in today’s market, RMI concludes gas is a risky investment:
RMI examined four case studies of proposed gas plants from utilities across the US. These cases included two combined-cycle gas turbine (CCGT) power plants, planned for high-capacity factor operation, and two combustion turbine power plants, planned for peak-hour operation. These power plants are proposed for a wide variety of regions with different resource availability, resource costs, climate- and weather-driven demand needs, and customer bases.
In all four cases, RMI found clean energy portfolios to be cost-competitive with proposed gas-fired generation, while meeting all required grid services and supporting system-level reliability. In three of the four cases, optimized, region-specific clean energy portfolios cost 8–60 percent less than the proposed gas plant, based on industry-standard cost forecasts and without subsidies. In only one case was the clean energy portfolio’s cost slightly higher than the proposed gas plant. However, further analysis revealed that modest carbon pricing (i.e., < $8/ton) or feasible community-scale solar cost reductions would easily reverse the result. Similarly, two more years of anticipated renewable and storage cost reductions would also eliminate the difference in cost between the clean energy portfolio and the gas plant.
All this is very bad news for the Atlantic Coast Pipeline. The ACP received approval from the Federal Energy Regulatory Commission (FERC) last year on the strength of supply contracts with the utility subsidiaries of Dominion Energy and Duke Energy, Dominion’s major partner in the pipeline. If these utilities don’t actually need the gas, the whole basis for FERC’s approval of the pipeline collapses.
No wonder Dominion Energy wants to extend its reach into South Carolina. Plans for new nuclear plants in the state recently imploded, potentially leaving a supply gap that new gas plants could fill.
And no wonder Dominion Energy Virginia continues to propose gas combustion turbines and ignore energy storage in spite of its cost declines. Dominion is scrambling to save the ACP.
How did Dominion get it so wrong? Recall that Dominion and its partners announced plans for the Atlantic Coast Pipeline in early September of 2014; the rationale for the pipeline would have relied on industry forecasts from 2013 and before. At that time, the gas industry was giddy about fracked gas displacing coal. While critics (including me) said new baseload gas plants would be giant concrete paperweights before they’d reached the end of their useful life, most utilities were drinking the fracked gas Kool-Aid.
In the intervening years, coal has certainly continued its exit (Donald Trump’s half-baked rescue plans notwithstanding), but solar and wind have become the cheapest source of electricity in the U.S., according to federal statistics. The cost of electricity from utility-scale solar farms has dropped by half since 2013, and by last year Dominion had identified solar as the cheapest source of new electricity in Virginia.
The problem for Dominion Energy is that the ACP is the only big trick it has now, after the failure of its own ambitions for new nuclear. Dominion doubled down on natural gas in 2016 when it paid 4.4 billion dollars for natural gas distribution company Questar, paying a 23% premium on the deal. It can’t back down from gas now. Either it has to spend 6 billion dollars (and rising) on this new pipeline, or admit its entire growth plan was based on a serious mistake.
Abandoning the ACP could make Dominion’s stock price tumble, giving it something else in common with GE. But as the saying goes, if you find yourself in a hole, you should really stop digging. In this case, literally.
For Dominion, perhaps a really old, but pertinent, article in Harvard Business Review about knowing when to pull the plug would be in order? You can suck it up and eat the sunk costs, or keep sinking money into the project just to eat more later.
As always, nicely done. My only quibble would be to add the words “owners *and ratepayers*” to the following sentence….. 🙂
“When that happens, gas plant owners will be left with stranded assets.”
On Tue, Jun 5, 2018 at 8:29 AM, Power for the People VA wrote:
> Ivy Main posted: ” Utility giant Dominion Energy and gas turbine maker > General Electric reportedly agree on a startling fact: there is no market > for new baseload gas plants. As recently as two years ago, Dominion’s > utility subsidiary in Virginia had as much as 8,000 ” >
Agreed, Albert. Here in Virginia, consumers can feel pretty confident they’ll be stuck with the bill.
How did, or has, Dominion commented on this? Are you Ivy among the many media outlets that Dominion simply refuses to deal with?
Jim, I noticed that even Forbes didn’t get a quote out of Dominion for their article.
I’ve followed status and progress of LNG plants for export since fracking became big when I lived in Fort Worth. Possibly relevant side note: EPA’s Pruitt’s landlady, of the $500/month Capitol Hill apt., is a lobbyist for Cheniere Energy, the leading producer of liquefied natural gas in the United States, and practically the only owner of LNG terminals. With our demand flat, and a glut of natgas from fracking, LNG export is that sector’s savior. This drew further attention when Pruitt met with Morocco’s Energy Minister last month – EPA not typically having energy markets as part of its portfolio….
Nice Post …I would like to add 2 thoughts. First, Dominion keeps coming up with gas uses but they have all proven insufficient to justify the ACP. The latest gas peaker plants are on their way out in the west, where electricity prics are bit higher than ours.
California regulators now require PG&E, California’s largest utility, to use batteries or other non-fossil fuel resources to meet peak electricity demand. By the time Dominion’s gas ‘peakers’ are built the price of solar/storage projects will be cost and performance winners in the East too.
Virginia needs both offshore wind and solar, the more the better instead of those peakers. …. Solar energy and wind energy peak at different times. And .. ” Offshore wind is an especially good match because it peaks later in the day than solar, after the hot sunshine has soaked into the earth and stimulated a breeze offshore, but while electricity demand is still peaking.”
Second … maybe Dominion is planning to eliminate those peakers too. Dominion has made no secret of their desire to extend the ACP into SC and some people in SC think ACP gas is headed for the planned LNG export facility on Elba Island, Georgia, right across the SC border. They don’t believe the demand for all the ACP gas can be met without including export and Chinese demand for LNG, which makes up 20 percent of the global market “nearly triples from 3.5 billion cubic feet of gas a day this year to 9.6 billion by the end of 2019, according to the Energy Department.”
Guess the export word can’t be said as the company seeks eminent domain all along the pipeline’s route.
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I postulate that the delivery of NG is not the driving force behind the ACP, but a means to other objectives. Consider, if you’re an executive or director of Dominion, what other use of capital is available that has a federally guaranteed 14% rate of return on capital? Plus the establishment of a 600 mike swath of property rights from WVa to the sea, for Dominion’s exclusive use in perpetuity.
Shareholders are likely pleased as the guaranteed RoR but what about ratepayers? Why should they pay it most, or all, of that gas isn’t fueling DOM’s power plants?
and what is interesting is that GE has begun to shift their investment monies into wind and away from gas. They have stopped digging.
Ivy, thanks for pointing out the inconsistencies in Dominion’s plans and presenting it in a way that everyone can understand. Whenever we are asked about solar policy in Virginia, we refer them to your website. I think we can only hope that our policy and public opinion can correct the course towards renewables before we are committed to antiquated forms of energy.
It would be wonderful to see the proposals from Dominion reflect what is needed to serve the populous, instead of what is (currently) the most profitable plan, as Averitt suggested.
Y’all know how frustrated I get when us clean energy advocates compare Dominion to utilities in other states with entirely different characteristics – some combination of:
o blue-controlled legislature and therefore SCC-equivalent;
o Renewable Portfolio Standards; and most importantly,
o Investor Owned Utilities (as compared to co-ops, public authorities, municipal utilities – Platt has a good map at this link but it’s hard to zoom).
If I may – been spending too much time on social media where the coarsening of discourse is rampant:
Why does Dominion act in the interests of its shareholders and executive compensation, rather than ratepayers, Virginia, and the environment? Why does a dog lick its, uh, hind paws…………….?
The Blue Wave of Nov. 2018, and the move towards the “pledge”for legislators to refuse Dominion money, gives me hope for fundamental change in Virginia electrical utility law – but it will need to be comprehensive and structural.
I emphatically agree with Kimberly Davis (aka kvdavis2). Until electric utilities in Virginia are required to behave by rules set by the marketplace, not the lawmakers and regulators they support, structural change will be a very L O N G time in coming — if it ever comes. Gas utilities in Virginia are ‘deregulated,’ why not electric utilities? I think most people know the answer to that question.
Yes, there’s not a chance in Hell that Dominion is going to go for any changes that will take away their monopoly status or start dramatically reducing their demand levels by allowing DERs … although that is what will happen eventually.
EVs are the only thing that is going to actually increase demand … Charging stations promote the scaling of EVs which the car companies say they are going to bring on line dramatically very soon. In Europe and the U.S., EVs will account for 13% and 12% of electricity demand by 2040.
So let’s try a new approach .. ‘EVs as a focus for change’ … Support Dominion building EV charging infrastructure in exchange for some of that “infrastructure” money that they are holding onto be allocated to efficient buildings. Such a trade off could maintain their demand level while addressing the climate.
In the NRDC’s view, “utilities should pay for infrastructure and then pass on the costs to ratepayers, in recognition of the fact that all ratepayers benefit from greater use of EVs”
AND NJ made the same bargain I would like to see … “PSE&G plans to invest $300 million in smart EV infrastructure, along with energy efficiency and energy storage projects. Its proposal, which it says will be filed with the Board of Public Utilities later in the year, is the largest transportation electrification program outside of California’s”
Maybe this approach could quell the demand reduction fears….
Any chance the panda power plant near Leesburg will go belly up due to cheaper renewables coming in line?
I’ve been wondering that myself, Bill. I know nothing about the circumstances of that plant–whether it has a long-term contract with a utility or just has to play in the (oversupplied) PJM wholesale market.
…..’Combined cycle plants, designed to run most of the time, have become the dominant source of power generation in Virginia.’…. The bad news is where I live in southwest VA my power (from APCO) is 78.5% from coal. The good news is maybe we we can just leapfrog over the gas without sinking huge amounts of money into Infrastructure that is going to go away.
I think these pipelines will supply an east coast LNG plant for export. “Energy poverty” programs such as Bill Gates’ are working in West Africa. (If you have access to WSJ account, find the natgas production graphs in “The Texas Well That Started A Revolution”, 6/30-7/1.)
Many of us agree Kay ..trouble is they are using eminent domain for export gas .. not exactly a “community benefit”
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