By Peter Bronski
In early January, the California Public Utilities Commission (CPUC) issued a ruling that might well prove to be a bellwether for natural gas-fired power plants: the CPUC directed one of the state’s investor-owned utilities to procure energy storage and/or preferred resources such as demand response and distributed solar to replace three existing gas plants (two gas peakers and a 580-megawatt combined cycle plant).
In the months since, we’ve come to know such combinations of energy storage, flexible demand, and distributed energy resources such as rooftop and community solar by another name: clean energy portfolios. And the idea that these clean energy portfolios could be both technologically and economically competitive with natural gas power plants represents a landmark shift for the market.
That shift now appears to be on the precipice of a major inflection point, per a new report released late last month by Rocky Mountain Institute, The Economics of Clean Energy Portfolios. A team from RMI analyzed four planned natural gas power plants in different regions of the U.S. and evaluated instead replacing them with portfolios of renewables, energy efficiency, demand flexibility, and storage.
More than 100 gigawatts of new, announced natural gas power plants are planned for the U.S. through 2025. Extrapolating retirements and anticipated further new builds through 2030, that “rush to gas” comes with a hefty price tag, locking in $1 trillion in combined infrastructure investment and fuel costs (just over half for capex, the remainder for opex). It also comes with a massive emissions footprint: 5 billion tons of CO2 through 2030 and 16 billion tons through the 20-year lifetimes of those gas plants.
Could clean energy portfolios obviate such as a costly scenario? According to RMI’s analysis, yes. And incorporating WattTime insights and capabilities into those portfolios could make their emissions benefits even greater.
The four real-world scenarios RMI evaluated included:
The corresponding clean energy portfolios varied according to the local grid mix and the primary services they needed to deliver (e.g., baseload capacity, peaking capacity, flexibility/ramping). The portfolios ranged from half wind paired with some storage and energy efficiency to three-quarters flexible demand paired with smaller slices of solar, storage, and efficiency.
“The biggest factor influencing portfolios in each region was the compatibility of local renewable resources with regional load profiles,” explains Mark Dyson, a principal at RMI and one of the lead authors of the new report. “For example, the West Coast region has significant existing solar, so the clean energy portfolio we modeled there relies heavily on new wind to balance solar production. In contrast, we found that new solar in Florida was very valuable for meeting mid-day loads in a state without as much existing solar capacity.”
Even with RMI’s conservative assumptions, the economics were impressive—from essentially net present cost parity in some scenarios (i.e., plus/minus 10%) to substantial savings of 40–60% in other scenarios—prompting media outlets such as Forbes to declare “the ‘rush to gas’ will strand billions as renewables get cheaper.”
“Given the cost declines in renewables and battery storage in recent years, it's not surprising that the economics look good for clean energy portfolios today. What's surprising is how fast the economics turn even better, and the stark implications for investment in new natural gas infrastructure,” Dyson adds.
The emissions side of the story may prove even more profound than the economic one. Clearly, in each of the four scenarios RMI analyzed, the clean energy portfolios avoid the fossil-fueled emissions that would come onto the grid if each of those natural gas plants gets built. Over the 20-year life of those plants, the savings range from 1–2 million tons of cumulative CO2 to upwards of 66 million tons. Across the four scenarios alone, the savings total more than 90 million tons. Total nationwide savings could reach 16 billion tons.
There are likely even further emissions savings available for the taking. For starters, replacing a natural gas power plant with a clean energy portfolio changes where those megawatts of generation sit in the merit order dispatch stack, the order by which grid operators call upon supply-side resources to meet electricity demand. The generator that fulfills the last megawatt of demand is known as the marginal generator.
Renewables generally sit first in the stack, thanks to their near-zero marginal operating costs (e.g., no fuel costs vs. fossil-fueled plants). This means that clean energy portfolios further build up the renewably-generated bottom of the merit order dispatch stack and thus potentially push even more fossil-fueled marginal generation out the top of the stack, above and beyond obviating the new-build gas plant. These “bonus” avoided marginal emissions will vary by location and its local grid mix, but they are very much real.
Further, RMI’s assemblage of clean energy portfolios includes a healthy mix of flexible demand, which equals up to three-quarters of the pie in the case of the Florida portfolio. This represents yet another opportunity to avoid emissions. That’s because how clean or dirty the grid’s electricity is varies across the hours of the day and night, depending on which generation sources are providing the electricity.
When WattTime-enabled smart devices such as thermostats, grid-interactive water heaters, electric vehicles, and others are enabled with the right software signal, they can automatically and effortlessly use their flexible demand to arbitrage clean and dirty grid times, choosing to consume electricity when generation is cleaner and to avoid energy consumption when it’s dirtier. In places where there’s both legacy dirty generation and a sizeable chunk of clean, variable renewable generation, the per-kWh opportunity to shave emissions can be huge.
So what’s next for making the promise of clean energy portfolios a reality? “The path forward requires solving some of the ‘soft cost’ challenges of integrating multiple technologies to meet grid needs,” says RMI’s Dyson. “In particular, customer acquisition costs for energy efficiency and demand response programs can be significant. WattTime-enabled demand flexibility can improve the customer value proposition and help scale deployment of demand-side resources.”
The net takeaway is that clean energy portfolios present a compelling cost-competitive, emissions-less alternative to new natural gas power plants and they can unlock even greater emissions-reduction benefits. This is exciting. As renewable energy continues its rapid growth, the grid’s decarbonization could accelerate even faster ahead of renewables’ megawatts expansion.