Reuters has learned from interviews with industry experts that the long-term economics of gas-fired power plants, traditionally used to offset the intermittency of wind and solar power, have deteriorated significantly compared to batteries. Thus, investors are rejecting the establishment of more and more gas producers.
According to data from the US-based non-profit Global Energy Monitor, 68 gas power projects worldwide were suspended or canceled in the first half of the year.
The cancellations include Competitive Power Ventures’ decision to abandon a gas-fired project in New Jersey, and Carlton Power’s decision not to build the new generator precisely because it is building one of the world’s largest battery farms in Manchester instead. The latter already clearly shows that energy storage is becoming the focus of the market in contrast to fossil projects.
Battery operators are now offering back-up energy to grids at prices competitive with gas plants, challenging assumptions about long-term gas demand.
The price of lithium-ion batteries has halved between 2016 and 2022, reaching $151 per kilowatt-hour, making storage more economically attractive. But just on Tuesday, Northvolt announced that it has developed a technology that can achieve similar storage capacity as lithium-ion batteries at a fraction of the cost.
As production from renewable energy sources has reached record levels in both Europe and the United States, wind and solar power exceed gas in electricity production, further reducing the role of gas-fired power plants in the energy transformation.
The transformation of energy economics is forcing the market to reassess the financial modeling of gas power plants, as developers no longer assume constant usage throughout the life of the power plants. Instead, modeling should take into account peak demand and the intermittent nature of renewables. The increasing participation of batteries and interconnectors in capacity markets traditionally dominated by fossil fuel power plants reflects the changing energy landscape.
Despite the challenges facing gas-fired power plants, efforts to reduce carbon emissions can increase costs for fossil-fueled facilities, and retrofitting carbon capture infrastructure should be considered. Meanwhile, additional disruptions—such as attempts at demand-side management and the proliferation of electric vehicles that can store and redistribute energy during peak demand—will further reduce the need for traditional backup power plants.
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