Natural gas projects at risk in 4 states, report warns

Source: By Arianna Skibell, E&E News reporter • Posted: Wednesday, October 7, 2020

An oversupply of natural gas in the nation’s largest regional grid operator’s portfolio could pose substantial risks for its customers and investors, according to a new report.

A joint study by the Applied Economics Clinic and the Institute for Energy Economics and Financial Analysis (IEEFA), which advocates for a diverse energy economy, identified a series of risks associated with 11 proposed gas facilities in PJM Interconnection’s footprint.

PJM coordinates the distribution of power to more than 65 million customers in 13 Midwestern and Mid-Atlantic states and the District of Columbia. The gas projects are slated for New Jersey, Ohio, Pennsylvania and West Virginia.

“Investments made today in U.S. natural gas-fired power plants are at risk due to rapidly changing market conditions that increase the likelihood of these assets becoming stranded before the end of their useful life,” Liz Stanton, director and senior economist at the Applied Economics Clinic, said in a statement.

Among the factors the report identified is a “massive” oversupply of gas. Since 2002, peak demand for power has grown by 1%, yet PJM’s natural gas capacity has skyrocketed to 173%, according to the report.

“The disparity means customers are paying for new generating capacity that is unnecessary,” according to the report’s authors.

Proponents of natural gas have argued that the fuel is essential to transition to a low-carbon economy, considering the intermittent nature of renewables and costs of other options.

“Renewables have gotten a lot cheaper, and they are going to be inevitable,” Calpine Corp. President and CEO Thad Hill said in a recent interview about decarbonization. “You’re still going to need the entire natural gas fleet that exists in this country. Natural gas plants are not getting in the way; they are an enabler, and that’s an important message.”

The study also points to high-risk global events such as the COVID-19 pandemic and extreme weather events that have already reduced global energy demand this year by 6%, according to the International Energy Agency.

State-passed low-carbon energy legislation in PJM’s territory could further imperil gas development, the report found. Additionally, cost reduction and increased interest in renewable resources and battery storage could likewise threaten the viability of gas.

“Individually, each of these risks could perhaps be factored into a project’s financing,” Dennis Wamsted, an IEEFA analyst and report co-author, said in a statement. “Taken together, they pose virtually insurmountable hurdles for new gas-fired projects in the region.”