MILWAUKEE, Wisconsin (June 22, 2022)—Gas plants in the Midwest operated at a loss for the equivalent of three months during 2019, forcing captive utility customers to pay an additional $117 million collectively in electricity costs. Elevated methane gas prices and steady additions of low-cost renewable energy resources will continue to put pressure on the economics of gas plants, according to “The Shaky Economics of Gas-Fired Power” a report released today from the Union of Concerned Scientists (UCS).
“We found that gas plants ran even when operating costs exceeded market revenues or lower cost alternatives were available,” said Ashtin Massie, an energy analyst at UCS and lead author of the report. “Even in 2019, when gas prices were at record lows, uneconomic gas plant operations left consumers on the hook for $117 million in losses. Now as gas prices rise and renewable energy becomes more available, the economic feasibility of gas will only continue to be challenged. This serves as a warning for regulators and power providers against approving and constructing new gas-fired power plants, respectively, and is a compelling reason to re-evaluate the U.S. power sector’s current overdependence on gas.”
The study focused on gas plants located within the Midwest’s two wholesale electricity markets—the Midcontinent Independent System Operator (MISO) and Southwest Power Pool (SPP). As wholesale electricity markets, MISO and SPP are tasked with meeting energy demand at every hour of every day, using the lowest cost resources available. Any power provider running its generators and selling electricity to the grid in these markets should be recovering its fuel and variable operating expenses, and should not be operating while losing money.
Instead, 87% of the gas facilities analyzed operated at a loss for at least one week in 2019. While a lack of publicly available data means the report is unable to conclusively state why this is happening, the analysis discusses some possible explanations including improper market bidding and self-scheduling of inflexible gas resources. A previous UCS report, “Used, but How Useful?,” describes how coal plants also engage in the latter practice. This new analysis, however, is the first public report looking specifically at this phenomenon among gas plants.
“With this information in hand, regulators should proactively ensure that ratepayers aren’t footing the bill for uneconomic fossil fuel power plants,” said Massie. “Under current wholesale market rules, there are limits to what the market can do alone, especially when these power plants have captive customers. That being said, one thing these markets could do is identify and reform current market rules that erroneously incentivize inflexibility.”
There are many opportunities for renewable energy resources to meet grid demands while lowering costs. Of the gas plants analyzed, the ones that most frequently operated at a loss were steam turbines and gas peaker plants, the latter of which is primarily used to help the grid meet spikes in demand. Renewable energy paired with battery storage, energy efficiency, and increased transmission, however, can reliably meet the same needs while creating savings for utilities and ratepayers.
“It’s time to start making investments that increase the flexibility of the grid, create widespread economic benefits, and reduce harmful emissions,” said Massie. “MISO and SPP should further investigate uneconomic gas resources in their markets and identify and remove barriers to entry for renewable resources that can replace the need for polluting and expensive gas-fired power.”
Burning fossil fuels contributes to climate change and creates localized air pollution, both of which disproportionately impact communities of color and low-income communities. An inefficient and expensive grid also contributes to higher energy burdens—the percentage of income spent on electricity and gas—especially for low-income households.
“It’s time for the Midwest energy market to shift its priorities towards saving ratepayers money, protecting the health of our communities, and fighting climate change,” said Massie.
To learn more, see Massie’s blog post “The Start of the Unraveling of Cheap Gas Fired Power."