US energy giant says renewables and batteries beat coal, gas and nuclear power

October 11th, 2019, Published in Articles: Energize

The energy industry is in the grip of massive change, with the cost of renewables and battery storage – without subsidies – beating gas, as well as existing coal and nuclear on costs.

This is the view of Jim Robo, the CEO, president and chairman of NextEra, the biggest and most successful utility in the US. “We see renewables plus battery storage without incentives being cheaper than natural gas, and cheaper than existing coal and existing nuclear,” Robo told analysts at the recent two-day Wolfe Utilities & Energy Conference in New York, adding that renewables would likely replace coal generation in the US within a decade.

To put these comments into context, NextEra is a huge company with US$17-billion of revenues, 46 GW of energy assets, 14 000 employees and a market value of around $114-billion.

Robo noted that the US government’s Energy Information Administration expects that the world’s biggest electricity market could reach 35% renewables by 2030; as high as 50% by 2030, and could ultimately be 70 to 75% by 2050.

“I think that’s very doable, and that would take out an enormous amount of carbon out of the US,” he said, adding that it would also bring rates down across the country. “That’s the thing that I think people still haven’t grasped – that you can be green and low cost at the same time and that it’s terrific for customers, it’s terrific for the environment and it’s great for shareholders as well. It really is good all around. And we’re leading the charge on disruption there, and I’m very excited about the growth prospects,” Robo said.

Robo’s comments are significant for a number of obvious reasons. Close watchers of the US energy market will already be aware that the cost of wind and solar has fallen dramatically, and recent auctions for “dispatchable” energy has seen renewables and battery storage projects beating gas on price.

The fact that renewables and storage, without further incentives, can beat out existing coal and nuclear plants, most of which have been fully depreciated, is just as significant. As is Robo’s point that “you can be green and low cost” at the same time. And, as he also notes, can deliver reliable power as well.

“You still have coal being roughly 35% of the energy generated last year and effectively, we think renewables can replace almost all of that by 2030,” Robo said. “When you look at wind and solar paired with a battery, new construction is cheaper than the operating cost of existing coal. “there’s very little reason from an economic standpoint to continue to run those units and there’s very little reason from a reliability standpoint to run those units and there’s certainly no reason from an environmental standpoint to run them. We see a massive shift there in terms of much of the coal in the country being phased out by 2030.”

In Australia, where the cost advantage of renewables and storage is recognised by the Commonwealth Scientific and Industrial Research Organisation (CSIRO) and the Australian Energy Market Operator, and by most of the major utilities in the country, and leading analysts.

But it’s not yet widely accepted in the political debate, or even in mainstream media. The federal government is now looking at nuclear as an option, despite the fact that the cost of new nuclear is many times the cost of renewables and storage, even with a carbon price that would only narrow the difference in cost with coal.

In a speech in Sydney recently, Angus Taylor, Australia’s energy minister, aired his views that the amount of wind and solar in the system – around 15% – is already too much, and said the “only realistic options to do most of that balancing are coal, gas and hydro.” No mention of batteries.

Robo, on the other hand, said battery storage cots are continuing to come down, and the amount of storage needed is often misunderstood. “For the first 1000 MW of battery storage, you probably only need two hours to really shape the peak,” he said. “I don’t think you need giant step changes to get to 70% or 75% (renewables) with the existing grid.

“We know that we can run the grid on days with very high wind and very good resources. So you can run the system on that, and that’s with very little storage on those systems, right? So four hours of storage, we think, is the sweet spot for most systems that we’ve modeled. And you don’t really need a step change to be able to do that.”

Still, Robo doesn’t like targets that set absolutes like 100% renewables, arguing that at 70% renewables the emissions would be hugely reduced, and “… getting to 100% is very expensive. Getting to 75% is going to be cheaper than the system we have now, and … getting that last little bit out, from an economic standpoint, doesn’t make a lot of sense. It’s just bad economics and it’s bad policy. And I think in the end, economics will win out in the long term.”

Robo said the outlook for existing nuclear in the US is mixed. In some regions the nuclear plants that it owns could compete, but in others, such as Iowa – where he said the cost of wind power and battery storage was around $20/MWh, and the cash operating costs of existing nuclear about $35 to $40/MWh, it would lose out.

The company is doing two combined wind, solar and battery storage projects – one in Oregon and another in Oklohoma – as well as what will be world’s largest battery in Florida in the Manatee Bay area, the 400 MW 2-hour battery which is scheduled to be online in 2021.

Tim Buckley, the director of energy finance studies at the Institute for Energy Economics and Financial Analysis (IEEFA), who was due to cite the presentation at a hearing into the federal government’s nuclear inquiry in Sydney, said Robo’s comments are significant because while they sounded like the “greenie nirvana view”, they came from the head of the biggest and most successful utility in the US.

“Capital markets and corporates are leading, technology is driving the disruption, and the government is being left behind with outdated views of the world. We’re talking of the US, but the same applies in Australia,” he said.

Buckley pointed out that while wind and solar are achieving prices of around $20 to $30/MWh in the US now, this includes a 30% investment tax credit. That expires after 2020, but what Robo is saying is that with 10% annual cost reductions likely to continue, by 2022 or 2023 unsubsidised renewable energy will be back to $20 to $30/MWh, or $30 to $40/MWh fully firmed, with no subsidies.

“As the US starts to export massive amounts of LNG, US domestic gas prices are likely to go up. Coal is dead by 2030 according to Robo, nuclear and then gas get progressively eroded thereafter.”

And he notes that NextEra is not an isolated case. Another two big utilities have in the last two weeks made similar commitments – to vastly increase their investments in wind, solar and battery storage, and shut down their coal plants early. Pacificorp, which operates in six western states of the US, last week released its 20-year “least cost” plan which outlined huge investments in solar, wind and battery storage, and the early closure of uneconomic coal generators. In the eastern states, Duke Energy has also fast-tracked the closure of its coal portfolio as part of its plans to slash emissions by 50% by 2030.

Acknowledgement

This article was first published by RenewEconomy and is republished here with permission.

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