Green Batteries Present Challenge to Natural Gas
This week, we talk about the increasing investment in renewable-powered batteries, which could lead to stranded natural-gas assets.
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Maitane: Hi Dieter! Natural gas, America’s main source of power, has a new challenger: batteries charged with renewable energy such as wind and solar.
A decade ago, the hydrocarbon gas superseded coal as the leading source of electricity in U.S. homes. Now, it is finding itself threatened with the same kind of disruption. But this time, the disruptors could help curb climate change.
The U.S. Energy Information Administration says natural-gas-fired electricity made up 38% of U.S. power generation in 2019 and, so far, battery storage only represents 1% of the electricity market. However, the battery and green-power cocktail is threatening to upend billions of dollars in natural-gas investments.
Yes, and this is raising concerns about whether power plants that have been built in the past 10 years could become “stranded assets.”
What are stranded assets? The term is used by investors to refer to physical assets that once had value but no longer do, having to be retired before they recover their investment cost. This can occur as a result of an external change like a disruptive technology, new regulation or a shift in consumer habits.
Companies are preparing to adapt to the shift. Energy company Vistra said it doesn’t plan to add any more natural-gas power stations to its 36-plant fleet and will instead invest more than $1billion in solar farms and battery-storage units in Texas and California. Utility company Duke Energy plans to add new gas-fired power plants but said it will adapt its strategy to deal with stranded-asset-related costs.
Vistra, like many other power companies, doesn’t expect gas plants to be immediately displaced but to be used less often as batteries increase the share of electricity they source from solar and wind farms.
As the trend toward electrification accelerates, it raises questions about the possible risks, benefits and steps we should take to prepare for it.
In the U.S., new regulations could emerge to support the increased use of electricity. U.S. electricity pricing and regulation typically rewards utilities for promoting higher electricity use, not energy conservation or cleaner fuels. New fee structures that give utilities incentives to adopt more resilient technologies such as smaller distributed networks or industrial-scale batteries to avoid blackouts could be one example of a new measure.
An update to the electricity grid could also be needed to make sure it doesn’t break down and it meets the surge in demand. This may include doubling or tripling the country’s electricity-transmission capacity, Princeton University estimates.
Interesting! Electrification—or transforming fuels into electricity first before they reach buildings, manufacturing facilities and cars—is a cornerstone of President Biden’s commitment to reach net-zero greenhouse-gas emissions by 2050, so we will keep an eye on how the administration intends to achieve that.
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Elevate the Conversation is produced by the editorial teams of The Wall Street Journal and Dow Jones Newswires. Here's a little bit more about us, along with our contact information. We'd love to hear from you.
Dieter Holger, Reporter: I have a knack for uncovering values-based investing trends and I’m obsessed with spreadsheets and charts. I really enjoy ‘80s music and skateboarding (but I suck). dieter.holger@wsj.com @dieterholger
Maitane Sardon, Reporter: I have a passion for amplifying the voices of those at the center of stories. I love running on Barcelona’s beaches and binging on chocolate ice-cream to compensate (it’s all about balance). maitane.sardon@wsj.com @sardonmaitane
Catherine Lindsay, Editor: I like breaking down complex ideas and explaining them. On the weekend, you’ll find me wandering the city with my film camera at the ready. catherine.lindsay@wsj.com @CathsLindsay
Tammy Lian, Designer: As a visual producer, I'm always excited by the challenge of creative problem solving. In my spare time, you can usually find me taking care of my ever-growing collection of plants and drinking tea. tammy.lian@wsj.com @violian.tammy