Duke Energy, the latest large investor-owned utility to commit to 100% carbon-free energy, plans to hinge its next 30 years on an "all of the above" generation strategy with natural gas serving "as the backbone" of its resource mix, Diane Denton, the utility's vice president of state energy policy, said.
As more of its coal plants become uneconomic, like many utilities, Duke is replacing some of that leftover capacity with gas-fired power, which emits around 50% to 60% less carbon on average than a typical coal-fired plant, according to the U.S. Energy Information Administration.
"I do believe that natural gas today is critical to decarbonization strategy. I think you can see that it's been responsible for the progress we've made," Denton said Wednesday on a panel at the Energy Bar Association's mid-year conference in Washington, D.C. "Today, most importantly, I think it's a technological question where we're looking at 'How do you run an electric system without it?'"
As the utility moves toward its goals, there are a lot of unknowns, she said. Critics point out that Duke's current plans to build out natural gas infrastructure over the next two decades could leave customers on the hook for uneconomic generation, but that question is merely an issue of regulators moving numbers in books, she said.
An 'accounting' question?
Under Duke's North and South Carolina plan, the utility plans to build out up to 4.7 GW of new natural gas between 2029 and 2034. In Florida, the utility has said it plans to increase the amount of gas in its generation mix to 77% in 2027 from 64% in 2017, according to the Energy and Policy Institute. And in Indiana, it proposed building a new natural gas plant in 2028 and another in 2034.
These proposed buildouts have some stakeholders concerned that customers may be on the hook for the back end of those investments, as renewables prices continue to drop and the utility sheds more carbon resources in the late 2030s to meet its sustainability goals.
But others say the low cost of natural gas makes it a rational investment in the next decade or so, even as a utility moves toward a carbon-fre scenario.
If a gas plant's operating life is expected to be between 15 and 20 years, it's reasonable to assume that a utility with an aggressive carbon-free goal like Duke's might be able to build, operate and retire that plant before it runs the risk of becoming a stranded asset, according to Emily Sanford Fisher, general counsel and corporate secretary for the Edison Electric Institute told Utility Dive.
Gas plants are less expensive to build and operate than coal plants and they take less time to build, according to EIA, so the overall depreciation life for those assets tends to be shorter and less expensive.
"When we talk about stranded assets, what we're talking about is 'I had to retire the unit or stop using the unit before I was able to recover the costs through the depreciation periods set by my public utility commission,'" said Sanford Fisher.
Larger investments, like coal, nuclear and larger gas plants tend to have a longer depreciation life than solar or wind, because utilities spread out the costs of those projects over decades of rates, which is why weighing the costs of retiring a plant early can be an expensive question for utilities, though often outweighed by pressure from stakeholders to provide cheaper, cleaner power.
This is also why some stakeholders are pressing utilities to be responsible on their front end investments, particularly as gas-fired plants become a popular option for utilities to build out as a transition from coal power.
"[I]t's sort of hard to know when we're going to hold them accountable for the bad mistakes of the past because we keep giving them a pass to the future."
John Wilson
Deputy Director for Regulatory Policy, Southern Alliance for Clean Energy
Though natural gas generation is cheap compared to coal and nuclear power, falling renewable energy prices threaten to undercut those prices, potentially leaving 70% of current gas investments uneconomic by 2035, according to a September report from the Rocky Mountain Institute.
As Duke nears the 2040s with some gas plants that are less than a decade old, Denton said the issue will be "an accounting question ... not a technological question," that could be solved through state-level policy, possibly through front-loading some of those costs to decrease the overall depreciation life. She compares front-loading those costs to taking out a shorter mortgage on a house, concentrating the costs of that asset over a shorter period of time.
"I think about it like you decide to build a house in 2030. The house may actually last for 100 years. The mortgage is typically 30 years, but you can also choose to take out a 15 year mortgage," she said. "And what that does is it just increases the cost on the front end. Renewable developers do this in the sense that their projects are front-end loaded … They get their profits on the front end in the first five years and then the back end, not so much."
But critics say that's a "callous" way of looking at investments, and utility's should be held more accountable.
"Yes, it's an accounting question, but it's a huge accounting question that shapes who delivers power, and on what terms, and on what expectations they have for being held accountable for good mistakes and bad mistakes," John Wilson, deputy director for regulatory policy at the Southern Alliance for Clean Energy, told Utility Dive.
"I think that the issue is that accounting is also about accountability," he said. And with utilities, it's not a one-time reprimand — "to hold them accountable for poor decisions is also to affect their future behavior. And it's sort of hard to know when we're going to hold them accountable for the bad mistakes of the past because we keep giving them a pass to the future."
"Not all natural gas generating units are the same."
Emily Sanford Fisher
General Counsel and Corporate Secretary, Edison Electric Institute
A "mixed" record as Duke targets 2050
As more utilities move toward aggressive emissions goals, many see coal-to-gas switching as a smooth path toward a lower carbon future — including Xcel Energy, which shares the same carbon reduction goal as Duke and also operates across multiple states. In general, stakeholders say there are best practices when it comes to making gas investments.
"Not all natural gas generating units are the same," said Sanford Fisher. Smaller, turbine-based plants are even cheaper to build than the traditional natural gas plant and can pair well with renewables to provide flexibility for the more intermittent resources as battery technologies mature.
Overall, natural gas is not the enemy, some clean energy groups say. Xcel's recent purchase of a natural gas plant in Minnesota received broad support from environmental groups.
Coal remains the main target of environmental groups and Duke has faced criticisms for not putting its units on an aggressive enough retirement path as well as for its management of toxic coal ash.
State regulators and stakeholders will need to "increase electricity prices slightly to help pay for [new plants] sooner so that they can be retired sooner."
Diane Denton
VP of state energy policy, Duke Energy
The remaining coal fleet will need to "accelerate" quickly in order for the utility to meet its 2050 goals in a timely manner, acknowledged Denton.
Retiring coal plants early is one of many risks Duke faces as it looks toward 2050 and begins to deal with the impacts of climate change. The process involves coordination among state regulators and stakeholders in order to "increase electricity prices slightly to help pay for those [plants] sooner so that they can be retired sooner," she said.
The utility plans to retire seven of its coal units by 2022 and has retired 6,910 MW across 49 units since 2010, with 22 plants remaining — totaling 30.3% of its electricity generated in 2018.
One area where the utility has made substantial progress is with its energy efficiency programming. The utility has cut customer energy consumption by almost 6,900 MW since 2000, said Denton.
"They have the best energy efficiency programs in the Southeast that we work with," said Wilson. But the utility still has a long way to go on plant retirements as well as a broader portfolio overhaul.
"An individual gas peaker plant here or there is not going to make or break a low carbon plan," said Wilson. "What really matters is whether they are revisiting sort of their overall long term strategy and investing heavily in clean technologies. And I would say that [Duke's] record on that is very mixed right now."
Other utilities, including Northern Indiana Public Service Company and Xcel, have found that lower cost resources are the more prudent investment, he pointed out, and although Duke has made investments in those resources, issues of hard-coding coal units into resource planning still exist. Overall, it can be difficult to incentivize utilities to commit to mass coal retirements because those companies are afraid to get pushback from state commissions on cost-recovery when a unit is retired before its depreciated life, Wilson said.
"It's one thing to take [unit retirements] kind of one at a time, slip it through the door," Wilson said. "But if you bring [regulators] a whole fleet of coal plants … that's going to be a challenge for the commission to accept. And unfortunately, that's a fundamental issue here. And so I think the very legitimate concern with natural gas investments is that you're setting up that same dynamic again in 10 or 15 years."
Correction: Duke Energy has cut customer energy consumption by almost 6,900 MW since 2000. An earlier version of this story had an incorrect figure.
