US President Joe Biden’s push to decarbonise the electricity sector by 2035 could strand at least $68bn in coal and natural gas assets nationwide, according to a new S&P Global Market Intelligence report.
That corresponds to $34bn in new gas plant construction and the same again in coal plant investment for completed or planned environmental retrofits that could be at risk as stranded costs for their owners.
There is no indication from Biden’s team or Democratic leaders in Congress that federal money would be available to help compensate either ratepayers or shareholders for the massive investments to comply with existing laws, or costs to switch to alternative energy sources should gas facilities in the planning stages not advance.
Power plant CO2 emissions last year were about 40% below 2005 levels, largely the result of independent power producers and utilities substituting coal for cheaper and cleaner natural gas, or renewables. However, recent pricing trends indicate further emissions reductions from a coal to gas transition are unlikely, according to the report.
In 2020, gas supplied 40% of the US electricity mix versus 19% in 2005, while coal declined to 19% from 50%, according to latest data from the US Energy Information Administration (EIA). Last year, wind, solar, hydro, and other renewables surpassed coal for the first time with a 21% market share.
The advancement of renewable mandates and regulatory support for retiring coal generation in parts of the country indicate that a new cycle of CO2 emissions reductions is on the horizon, wrote Steve Piper and Adam Wilson, authors of the S&P report.
To meet ambitious decarbonistion targets such as the Biden administration’s proposed clean energy standard, green energy will need to expand much more rapidly by 2035.
The report notes that this drive, if fully carried out, could reduce the value of recent investments in pollution control equipment at coal plants or those set for the future (more than 100 plants totaling 100GW, or half the existing US fleet).
“The financial hit of different types of retrofits can vary substantially, but retrofits on larger plants to address multiple types of emissions can cost well over $1bn,” they wrote, but emission of CO2 “does not currently have a financially viable solution to address it”.
The report lists 22 coal plants that have undergone environmental retrofits costs more than $3.5bn are already tagged for partial or complete retirement. “This trend is expected to continue,” they wrote.
On the gas side, the risk of stranded assets is growing as the clean energy transition accelerates, particularly in regions ahead of the curve in renewable and carbon pricing legislation, according to the report.
These include California, New England, New York, and states in the PJM Interconnection that participate in an electric sector CO2 emissions cap-and-trade programme known as RGGI (Regional Greenhouse Gas Initiative.). Those states are Delaware, Maryland, New Jersey and Virginia.