NEW YORK—Power generators in both regulated and commercial markets across North America are pushing ahead with plans to retire a great amount of coal-fired capacity, but they are by no means committed to replacing that with gas-fired generation.
That was the key message from utility executives at the recent S&P Global Market Intelligence Power & Gas M&A Symposium. To be sure, gas is in the mix but producers and midstream operators that make the assumption of gas for coal at one-to-one do so at their own peril. Moreover, rapid advances in storage technology are starting to address the intermittency challenge in renewables, also possibly impinging on a smaller market but one that has to date relied upon natural gas for on-demand generation.
“The Province of Ontario, which represents 40% of the population of Canada, made a commitment to eliminate coal and signed power-purchase agreements for wind and solar,” said Mayo Schmidt, CEO of Hydro One, the major utility in that province. According to S&P, there is already 28 gigawatts of solar generating capacity on the grid in the U.S., with 35 GW announced or planned, and a further aggregate 13 GW of rooftop solar anticipated.
Those trends continue despite efforts in Washington to roll back clean-energy mandates.
“We were a traditional heavy coal generator,” said Terry Bassham, CEO of Great Plains Energy Inc. (NYSE: GXP). “We are moving away from coal and had to shut plants or make them compliant. So far we have been able to overachieve in advance of the rules, so the rollback does not really make any difference for us. We are already well down the road [to clean energy] regardless. That is for customer reasons, cost reasons, and environmental reasons, not just regulatory reasons.”
Robert Flexon, CEO of Dynegy (NYSE: DYN), added that the change in regulatory approach “does not change our strategy, only our spending. That spending [on clean energy] may not be as fast but we will still do the same level. Only the rate has changed, not the amount. There is no change in our strategy.”
Those trends are good news for the environment, but mixed news for the midstream. The overall growth of gas demand may be driven by domestic industrial uses and LNG exports, but those markets already enjoy robust midstream connections for the most part. New domestic power generation held the prospect not only for additional gas demand, but also for new midstream pipe and compression. If utilities are now increasingly looking to renewables, then the role of gas as the bridge fuel to the future may find the traffic taking a detour around the bridge.
Brassham at Great Plains noted that Kansas City has led the U.S. in growth for electric vehicles (EVs) for the last four calendar quarters because his company established its own network of recharging stations to eliminate “range anxiety” for drivers of EVs. “If we don’t do it, someone else will.” Returning to the topic of conversion, Brassham said, “we have some larger coal-fired plants that are competitive. We are shutting some smaller ones and going to wind and greater efficiency.”
Gas distribution is still part of the clean-energy mix, but even in that utilities seem to be eyeing what could be considered a midstream role. Barry Perry, CEO of major North America power company Fortis (NYSE: FTS) noted several initiatives in the Province of British Columbia for local LNG and CNG distribution.
“We have a new LNG tank available for local buses and trucks,” he said. “The ferries are being converted to LNG. The LNG and CNG fueling stations are built into our rate base, and we will continue to invest in this area.”
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