By Steve Huntoon

To recap, environmental advocates have decided to fight natural gas generation, notwithstanding, as I’ve pointed out, the fundamental problems with relying only on renewables and batteries, and the fact that new natural gas, not renewables, is responsible for 90% of the reduction in carbon emissions in places like PJM.[efn_note]http://energy-counsel.com/docs/NRDC-Prescribes-More-Carbon-Emissions.pdf; http://energy-counsel.com/docs/Cue-the-Pixie-Dust.pdf.[/efn_note]

The latest salvo was Rocky Mountain Institute’s claim that the bulk of new natural gas generation is/will be uneconomic. As I said before, perhaps the advocates hope that if gas investment is scared off, then renewables and batteries become a fait accompli.

RMI Study’s Flaws Discussed in the Prior Column

My prior column[efn_note]http://energy-counsel.com/docs/cue-more-pixie-dust.pdf.[/efn_note] suggested RMI’s study had at least two major flaws.

The first major flaw was that 40 to 50% of RMI’s “clean energy portfolio” (CEP) comes from demand response and energy efficiency. It assumed large amounts of those resources are available at low cost.

And, importantly, it assumed that these hypothetical low-cost resources were only available to its renewables/battery CEP portfolio and not to a gas portfolio. As a result, the economics that RMI attributed to its renewables/battery portfolio actually came from mixing in low-cost DR and EE that are not unique to that portfolio.

The second major flaw was that in its modeling, RMI used traditional fossil generation to recharge the batteries. Yes, ironically, traditional fossil generation was supplying a “clean energy portfolio.” And, most dramatically, in a last hour of covering peak load, the equivalent of a 1.5-GW gas generator was matched by: zero wind and a negligible amount of solar; batteries charged with traditional fossil generation; and huge amounts of DR and EE, neither of which are unique to a renewables/battery scenario. In other words, renewables contributed virtually nothing to matching the 1.5-GW gas generator.

RMI’s Claims About Gas Investment

RMI replied to my column two weeks ago, adding new positions and defending its past ones. Let’s see how it goes. (See Stakeholder Soapbox: The Risky Case for Gas-fired Plants.)

First, RMI claims that we’re already seeing premature gas retirements, citing the retirement of one gas plant in California — which was due to the ill-fated GE H-Class turbine design[efn_note]https://www.reuters.com/article/us-ge-power/general-electric-to-scrap-california-power-plant-20-years-early-idUSKCN1TM2MV.[/efn_note] — and the bankruptcy of another in Texas — which was due to unique factors.[efn_note]https://www.utilitydive.com/news/panda-temple-bankruptcy-could-chill-new-gas-plant-buildout-in-ercot-market/442582/.[/efn_note] These one-off instances are not meaningful.

RMI says investors are “taking notice,” pointing out that final investment decisions for new gas plants have declined since 2014. But at this level, they are the same as they were in 2010. Trend or cycle? And RMI is not correct that the capacity factor of combined cycle gas plants is declining; in fact, the article cited by RMI has a chart clearly showing the opposite.[efn_note]https://www.spglobal.com/marketintelligence/en/news-insights/trending/Pu5fAcJoqopojxYhGN0tMw2.[/efn_note]

Just as Energy Information Administration data show that the capacity factor of combined cycle gas plants is at a record[efn_note]EIA Electric Power Monthly, Table 6.7.A, for August 2019 and August 2014, available here, https://www.eia.gov/electricity/monthly/epm_table_grapher.php?t=epmt_6_07_a.[/efn_note] high:

Even if RMI were right about such things as capacity factors, none of it is really reflective of investor sentiment. The real indicators are things like the share price of NRG Energy — the best proxy for competitive fossil generation (about half of which is gas) — which is up from $11/share to $40/share in the last three years. And RMI’s own statement that there is “more than $100 billion in planned gas infrastructure investment through 2025.”

If gas is a bad investment, Wall Street didn’t get the memo. RMI may suggest its study is the memo, so that takes us back to the study itself.

RMI’s Reply on Assuming and Co-opting the Low-cost Resources

RMI’s aggressive assumption on lots of available DR and EE cannot be sustained by referring, as RMI does, to “definitive resource potential assessments” (my emphasis). Potential is just that.

But more important, RMI admits that it assumed the availability of (low-cost) DR and EE for its renewables/battery portfolio and not for its gas portfolio. It now says that’s OK because its study showed that DR and EE are “natural complements to zero-marginal-cost generation from wind and solar.”

I can’t find anything in the study that remotely supports that proposition. I can’t even find the words “complement” or “zero” in a word search. Please note that RMI saying in its study that it optimized resources in its modeling should not be confused with a showing that certain resources complement each other better than others.

Bottom line: The RMI study’s co-option of low-cost DR and EE resources for its CEP portfolio is a fundamental, unsupported flaw.

Low-cost Resources Threat to Gas?

RMI says that the implication of my critique is that inexpensive DR and EE are themselves a threat to gas investment. A clever thought. But too clever by half. It’s RMI, not me, that assumes vast availability of low-cost DR and EE.

And if DR and EE are a threat to gas, then they must be a bigger threat to more-expensive renewables. Is RMI warning Wall Street about renewable investment? No, I didn’t think so.

The CEP Dependency on Fossil Generation

RMI does not deny that in the last hours of peak conditions, fossil units are providing needed generation via batteries, and renewables are providing virtually nothing. RMI says that just reflects the leveraging of available fossil generation for the foreseeable future.

Fair enough I guess. So long as everyone understands that RMI’s modeling is not of a sustainable equilibrium condition. Instead, it depends on fossil generation sticking around so when solar and wind aren’t generating, the system can still serve load reliably. And as I’ve pointed out, if new gas generation is scared off, then the old fossil with much higher carbon emissions will be what carries the CEP portfolio.

Finally, RMI goes on to overplay its hand by claiming that nothing undermines its central finding “that CEPs can compete and win on gas plants’ own turf.” No. In its modeling, RMI’s CEP portfolio is undeniably dependent on fossil generation. RMI admits that. The converse is not true: A fossil fleet is dispatchable and is not dependent on renewables/batteries, as decades of reliability grid operation without renewables or batteries attest.

Yes, we’ll still be needing that pixie dust.