‘Panicked rush to gas’ could hike energy costs, report warns regulators

The nation’s largest public power company, the Tennessee Valley Authority, which serves 10 million people in Tennessee and parts of six neighboring states, has put forward plans for eight new natural gas plants since 2020.

In South Carolina, Dominion Energy and Santee Cooper are pushing the state legislature to pave the way for a 2,000-megawatt natural gas power plant. Farther north, Dominion also plans new gas generation in Virginia. In its most recent plan filed with state regulators, Georgia Power is looking to add new gas turbines. Likewise, Duke Energy in North Carolina is proposing new gas plants and delaying coal power retirements.

The companies point to spiking electric demand, driven by data centers, new manufacturing facilities, increasing transportation electrification and other sources.

Georgia Power’s CEO said new businesses are creating a thirst for new power at “both a record scale and velocity.” Duke and TVA both cited “tremendous” economic and population growth in their service areas.

But a new report by an energy and climate policy think tank warns that some utilities, particularly in the South, are making a “panicked rush to gas” and calls on state officials to explore cheaper options and carefully vet plans that could saddle electric customers with billions in costs.

”What we really want is for policymakers to ask good questions,” said Eric Gimon, a senior fellow at Energy Innovation, and one of the authors of the brief for utility regulators, in an interview with States Newsroom.

‘Less risky alternatives’

After about 15 years of stagnation, U.S. electric demand is growing. A December report by an electric sector consulting firm noted that the utilities and regional transmission organizations that run the North American electric grid had almost doubled growth projections. At the same time, transmission line construction has nearly ground to a halt and there’s limited ability to move power between regions as the generation mix increasingly shifts to renewables and batteries in many parts of the country.

That’s been coupled with a growing dependence on natural gas power plants, which have taken the role coal used to play in the nation’s power mix but which have also failed in large numbers during recent severe weather.

Gimon said gas plants are often treated as a magic bullet solution to resource adequacy — an electric industry term for having enough power to meet peak demand. If the vision of the utilities pushing for lots of new gas power comes to pass, one of two things will happen, Gimon contends.

“Either they don’t get used very much,” he said, and thus become a stranded asset customers are stuck paying for anyway. “Or they get used a lot and they’re busting through their climate goals and EPA regulations.” In a post Thursday, two Natural Resources Defense Council staffers warned that the huge planned Southeastern gas buildout will jeopardize emission reduction targets and hike electric costs, “leaving customers on the hook for potentially expensive, dirty and ultimately stranded assets that may or may not be usable for their typical, carbon-intensive lifespans.”

Gimon and one of his co-authors, Mike O’Boyle, Energy Innovation’s senior director for electricity, also pointed out that gas plants can’t always be counted on when they’re needed most. In the region run by PJM, the nation’s largest grid operator, gas plants accounted for 70% of the power plant outages it suffered during Winter Storm Elliott in December 2022.

“We’re not talking about a capacity resource that is dependable for 100% of its nameplate capacity during a winter peak either,” O’Boyle said. “I think regulators’ jobs are to help ensure that utility investments are prudent and part of that means have they considered more affordable alternatives and less risky alternatives.”

Sarah Durdaller, a spokesperson for the Edison Electric Institute, which represents investor-owned utilities like Dominion Energy, Southern Company and Duke Energy, said its member companies “are committed to delivering reliable, affordable and resilient clean energy to their customers.”

Durdaller said carbon emissions from the power sector are at their lowest point in almost 50 years, despite electricity generation doubling in that time frame. Natural gas power, she said, “is an essential partner for deploying renewables and maintaining grid reliability.”

As far as the thousands of megawatts of gas plants companies are proposing, she said that utility plans “always evolve as new technologies emerge, as costs decline, as demand forecasts change and as new policies are fully implemented.”

‘Better solutions’

One aspect for policymakers to consider is the reliability of the demand projections themselves.

“Utilities consistently over forecast,” said Gudrun Thompson, a senior attorney at the Southern Environmental Law Center, which has been tracking southeastern utilities’ gas plant proposals. “I would not be surprised if that is happening now.”

Transparency is also a concern, she added, noting that a single data center project could be in negotiations with multiple utilities and get counted by all of them in their load projections.

In 2007, the U.S. Energy Information Administration predicted 1.5% annual growth in electric demand, which would have been a 21% increase over 15 years. It never materialized, mostly because of energy efficiency programs, federal and local building codes and appliance standards and voluntary industry efforts, the Energy Innovation report says.

“Efficiency was a primary cause of flat demand after 2008 and could be a major factor in

mitigating the pressure that new demand growth puts on the electrical grid,” the report notes.

Coming electric load increases aren’t illusory but the report’s authors argue that “better near-term and long-term solutions exist and should be deployed first.”

For example, Gimon said, battery storage is growing by leaps and bounds in Texas and California, and it’s already playing a growing role in helping to meet peak demand. However, in their planning some Southeastern utilities are treating battery storage “like it’s some new technology from Mars,” Gimon said.

The Energy Innovation report’s other recommendations include:

• Taking advantage of existing locations with power infrastructure onsite to build renewable power and battery storage, skipping the long wait times to connect to the grid plaguing many new power projects across the country. The Rocky Mountain Institute, a green energy nonprofit, calls it “clean repowering” and says there’s 250 gigawatts (the rough equivalent of 250 large power plants) of new renewable potential at former fossil sites scattered across the country that could be harnessed to create billions in savings and cleaner power generation.
• Look to meet large customer demands with onsite power, such as solar panels, and take better advantage of demand response programs, which enroll large customers who voluntarily agree to reduce power consumption in exchange for savings. Many of those customers include large corporations that have their own carbon reduction targets. Shaving that large customer demand could avoid some or all new peak gas capacity, the report says. “The utilities’ responses to load growth are coming into conflict with the explicit goals of their own customers who are driving that load growth,” O’Boyle said.
• Improve how the existing electric system is used by implementing grid-enhancing technologies like dynamic line ratings, power flow controllers and other systems. They’re common in other countries but have been slow to take root in many parts of the U.S. where utilities make the most money by building the most expensive solution they can get approved, not necessarily the one that’s most cost-effective for customers. “The fact is any data center is hooking into a system,” Gimon said. “That system is remarkably underutilized.”
• Improve regional connections, particularly in the Southeast, which is fast becoming one of the few remaining parts of the country without any real regional wholesale electric market. In 2022, Southeastern utilities created the Southeast Energy Exchange Market, but it’s been criticized as a market in name only, since the volume of actual trades has failed to amount to much. “Research from Energy Innovation and Vibrant Clean Energy found that sharing capacity between non-RTO states in the Southeast would yield more than $10 billion in cost savings annually, revealing a region replete with spare capacity if utilities can figure out how to share it,” the report says.

It will fall to state utility regulators and policymakers to gauge how desperately their residents actually need all the new gas power being proposed and whether there are cheaper ways to meet climbing demand.

Adding more rooftop solar, energy efficiency programs and residential batteries, known as distributed resources, which can be aggregated into what’s known as a virtual power plant, might mean lower electric sales, the report noted.

“In some states, the electric utility is also the gas utility and can benefit from rate-basing new gas infrastructure. These circumstances create incentives that can skew utility decisions toward well-worn solutions like gas plants and typically disincentivize regional coordination,” the report says. “Ultimately, policymakers need to demand more from their utilities and be skeptical of the ‘usual suspect’ solutions.”

Thompson, the SELC attorney, called the amount of new gas southern utilities are proposing “staggering.” The organization estimates that if all the new gas plants proposed get built, it will eclipse the amount of coal generation southern utilities plan to retire over the next 15 years by roughly 8 gigawatts. Regulators, she said, need to “look very hard at the load growth projections and take a hard look at choices that the utilities are making,” including pending EPA carbon regulations that could require expensive carbon capture technology or co-firing with hydrogen and whether the plants will require new pipeline infrastructure. “If all of these plants get approved and built we’re just not going to achieve the carbon reductions that we need to be on a path to averting the worst effects of climate change.”