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2020 Strategic Directions: Electric Report

Electric Industry Rethinks its Generation Portfolios With Eye Toward Renewables, Hydrogen

Electric Industry Rethinks its Generation Portfolios With Eye Toward Renewables, Hydrogen

Illustrating how U.S. electric utilities are rethinking their power generation portfolio mixes, Florida Power & Light Co.’s corporate parent presented itself as a trailblazer in an evolving industry where once-dominant coal spirals out of favor, ceding to cleaner, greener options.

On earnings call with analysts in July, NextEra Energy’s chief financial officer affirmed plans by FPL — among the biggest rate-regulated electric utilities in the U.S. — to retire its last coal-fired plant in early 2022. Rebecca Kujawa added that mothballing the 847-megawatt site as part of the company’s coal phase-out launched in 2015 should save FPL customers hundreds of millions of dollars and prevent some 4 million tons of carbon dioxide emissions a year.

With more than 5 million customer accounts in Florida, FPL becomes one of the nation’s first utilities to purge coal entirely from its generation portfolio and stake its future to alternative fuel sources, both for the sake of the environment and resilience.

While other utilities are slower in making such an aggressive shift, there’s little question the industry is migrating from coal — and to some degree, cleaner-burning natural gas — toward more renewable power from the wind, sun and even hydrogen, a rising star. Advances in energy storage may hold the key in accelerating the makeover.

Call it a repowering of the power sector, and a recent survey of more than 600 electric industry stakeholders for Black & Veatch’s latest Strategic Directions: Electric Report brings it into tighter focus.

Nearly half of respondents say they’re investing much more or somewhat more into local renewables at least in the short-term, outpacing capital spending on such things as distribution, transmission and other DER. Looking out over the next half decade, the push for renewables is more striking. Eight of 10 respondents — 82 percent — forecast that more of their investments in new generation capacity will be directed at solar arrays on land, followed closely by energy storage (79 percent) and eventually microgrids and other DER (65 percent).

Wind energy both on land and water, along with floating solar, are seeing more popularity than power fueled by natural gas. Spending on coalfired generation ranked dead last, with just 3 percent planning to increase their spending on it — and 60 percent expecting to devote “much less” funding.

2020 Strategic Directions: Electric Report

Energy storage’s ranking of second only to on-land solar illustrates the mindshare that technology has grabbed and figures to continue to grow as the cost of battery and other types of longer-duration storage declines over time, accelerating adoption of renewables along the way.

At least in the near-term, the survey shows, abundant natural gas is expected to play a key role in the power generation equation — most likely as a backup, covering for the intermittency of solar and wind energy — as traditional baseload coal and nuclear generation are retired.

Forty-five percent of respondents anticipate that investment in natural gas will continue beyond 2035 as coal and nuclear units are retired. Just 10 percent see fossil fuels as important grid components over the next decade and a half.

The March of Renewables

According to U.S. Department of Energy data, annual energy usage from renewable sources in April 2019 exceeded coal consumption for the first time since before 1885, and that trend isn’t slowing.

Earlier this year, the U.S. Energy Information Administration (EIA) predicted that solar and wind energy would dominate America’s new generation in 2020, accounting for threequarters of new generation while adding 42 gigawatts (GW) of zero-emission capacity. As the most-used source of renewable energy for U.S. electricity generation on an annual basis, wind power last year surpassed hydropower for the first time and is forecast to represent the biggest share of new U.S. generation from renewables in 2020, at 44 percent, followed by solar (32 percent) and natural gas (22 percent). Coal-fired power production, which last year plunged to its lowest level in 42 years, is anticipated to slide by an additional 13 percent in 2020, merely adding to its disfavor over the past decade.

Striking drop-offs in prices for energy derived from the wind and sun have fanned the broader adoptions of it by utilities, putting utility scale renewable energy prices appreciably below those for coal and gas generation, strengthening the business case for clean energy.

Over the next decade, the survey results illustrate, utilities expect solar (79 percent) and wind (67 percent) power to help them meet their clean energy goals or cut their emissions and carbon output, presumably because those renewables are readily deployable with established, matured technology and competitive costs. Those numbers drop into the 40th percentiles beyond 10 years, segueing to more deployments of hydrogen (58 percent) and battery energy storage (48) as the leading, more favored options to getting greener as those options evolve.

The Rising Promise of Hydrogen

Already used in industrial processes, “gray hydrogen” — derived from fossil fuels such as oil, natural gas and coal — slowly is giving way to “green hydrogen,” produced when electricity from clean solar or wind generation is used to power the electrolysis process that separates hydrogen and oxygen atoms in a water molecule. That hydrogen gas then can be stored in a tank or cavern before being funneled into a fuel cell, creating clean, emissions-free electricity.

To FPL and some other utilities ambitiously pursuing decarbonization, hydrogen is simply elemental.

While acknowledging its toe-in-the-water approach to deploying solar and battery storage, NextEra is devoting $65 million to a proposed FPL pilot effort to use solar energy that otherwise would have been clipped to produce completely green hydrogen through a roughly 20-megawatt (MW) electrolysis system.

Subject to approval by Florida regulators, the plan is to use the hydrogen by 2023 to replace a portion of the natural gas being consumed by one of the three Okeechobee Clean Energy Center gas turbines.

“Based on our ongoing analysis of the long-term potential of low-cost renewables, we remain as confident as ever that wind, solar and battery storage will be hugely disruptive to the country’s existing generation fleet, while reducing costs for customers and helping achieve future CO2 emissions reductions,” NextEra’s Kujawa told analysts. “However, to achieve an emissions free future, we believe other technologies will be necessary, and we are particularly excited about the long-term potential of hydrogen.”

Thousands of miles away, Black & Veatch is helping the Intermountain Power Agency (IPA) transition to green hydrogen as it works to substantially decrease and ultimately minimize its carbon footprint across Utah, Nevada and California. As part of its intermountain “renewable project” — among the earliest installations of combustion turbine technology designed to use a high percentage of hydrogen, which emits only water — the plan is to eventually replace a coal-fired power plant with an 840-megawatt, combined-cycle natural gas facility. The new plant will be commercially guaranteed capable of blending 30 percent green hydrogen at start-up, with plans to transition to pure hydrogen by 2045.

As the Institute for Energy Economics and Financial Analysis has reported, the Los Angeles Department of Water and Power — operator of the Intermountain site and the biggest buyer of its power — plans to use the revamped plant to help meet California’s target to completely decarbonize all retail power sales in the state by 2045. Several other municipal utilities in California and Utah that now purchase power from the coal-fired plant have agreed to buy electricity from the re-powered project.

Overseas, there’s broader, more aggressive adoption of melding hydrogen into generation mixes. But domestically, as Black & Veatch’s survey results show, deployment of that gas as a power source is more plodding, perhaps because of its relative novelty. More than four in 10 respondents — 43 percent — said they would consider hydrogen for fuel cell storage, with roughly one-quarter citing the gas’ potential use for transportation fuel for fleets or as an option for peak generation. Using hydrogen for backup power or as part of a microgrid garnered slightly less than one-fifth of the responses. Three in 10 said they wouldn’t consider hydrogen at all.

The Push to Decarbonize: The Carrot or the Stick

With great fanfare, North Carolina-based Duke Energy — with 7.7 million electric customers and 1.6 million gas customers — last year committed to be entirely carbon-free by 2050 and cutting emissions in half by the end of this decade, helped a great deal by battery storage. The company expects to double its renewable energy portfolio by 2025, up 10 percent from its earlier goal.

Duke is making the move on its own, without regulatory or legislative pressure. Other utilities are being compelled to change to meet state mandated clean energy targets increasingly demanded by environmental activists, investors, rate-payers and regulators. Dozens of states either have enacted renewable energy portfolio standards or goals or are considering them.

Some 85 percent of respondents to Black & Veatch’s survey are pursuing getting cleaner and greener with goals of cutting planet-warming emissions or turning to more renewables, albeit for different reasons. More than half — 53 percent — say they’re doing so voluntarily, roughly 13 percentage points more than those attributing their efforts to a state regulatory mandate. Fifteen percent report having no such goals.

To no one’s surprise, bigger utilities — those serving at least 2 million people — more commonly are chasing cleaner ways of power generation by their own volition, perhaps because they have the balance sheets to do it. Thirty percent of smaller utilities, which serve fewer than 500,000 residents, say they have no such goals, perhaps because of the cost.

Across the board, more utilities rethinking their power generation mixes are awakening to the economic and environmental merits of renewable energy amid forecasts that the prices for it will continue declining over the coming decades as the technology reaches broader scale.

As Silvio Marcacci of the nonpartisan climate policy think tank Energy Innovation pressed in a Forbes column last January, “utilities that stick with a business-as-usual approach do so at their own peril, increasing the risk of expensive stranded assets and higher consumer electricity prices.”

About the Authors

Denny Yeung is a principal consultant for Black & Veatch Management Consulting. He is an active contributor to Black & Veatch’s Energy Market Perspective (EMP), its long-term view of gas and electric markets. Yeung has managed numerous gas-electric reliability assessments and is responsible for developing the natural gas fundamental forecast.

Hua Fang is a director of advisory and planning with Black & Veatch Management Consulting LLC. She is a Ph.D. economist with 20 years of experience in integrated energy market modeling and forecasting, asset valuation and commercial strategy. Fang oversees Black & Veatch’s Energy Market Perspective, an integrated energy modeling framework that projects long-term developments of the North America energy markets.

Jason Rowell is an associate vice president and global technology portfolio manager for Black & Veatch. He is responsible for developing projects and implementing industry leading solutions through technology innovation. Technology portfolio areas under Rowell’s direct leadership include carbon capture and utilization, hydrogen, supercritical CO2, waste-to-energy, biomass, and environmental and sustainability.

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