Loss-making gas-fired power plants 'are risky bet for investors'
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Gas-fired power plants are increasingly making a loss in both Europe and the US, a situation not helped by soaring fuel prices, a report from Carbon Tracker reveals.
The financial think tank estimates that developers of most gas plants planned or under construction will never recover their initial investment and more than $24bn (£17.5bn) is at risk in the US and nearly £2.6bn in the UK, even if plants run for their full planned lifetime.
Many governments are pledging to meet net zero carbon by 2050, which will force most gas plants to be closed before the end of their lifetime unless there is significant progress in technologies to reduce their emissions.
US President Joe Biden and UK Prime Minister Boris Johnson have both committed to deliver a carbon-free power sector by 2035, while the EU has also made clear that gas has no long-term future.
The report calculates that if gas plants are phased out in line with a target of net zero by 2050, nearly $16bn of investment in units that are currently profitable could be stranded.
Gas is the largest single source of power sector emissions in Europe, accounting for 34 per cent, and is responsible for 44 per cent of US power sector emissions. In both Europe and the US, it is already cheaper to generate energy by building new solar and onshore wind capacity than to continue running existing gas plants.
However, this does not take into the account the need for baseload generation, the likes of which gas plants can provide, which help to maintain electricity demand during down periods for renewables. Nevertheless, rapid deployment of wind and solar power has reduced utilisation of gas plants, a trend that is only expected to increase.
Jonathan Sims, Carbon Tracker senior analyst and report co-author, said: “The long-term use of unabated gas for power generation is incompatible with climate targets, and units are unlikely to run for their full lifetimes.
“Investors who continue to back gas ahead of renewables are not only exposing themselves to the risk of stranded assets but are also potentially missing out on higher rates of return from the clean energy sector.”
Carbon Tracker analysed the financial reports of 835 operational gas power plants in Europe and found that 43GW in the UK and EU (22 per cent) and 159GW in the US (31 per cent) is already lossmaking when operating and carbon costs are taken into account.
Even with no new government policies to phase out gas plants, only seven countries are expected to have profitable gas fleets by 2035, the top five of which – Italy, UK, France, Ireland and Poland – support gas through capacity markets. These are designed to ensure a reliable power supply by offering financial incentives to generators that can make capacity available at periods when it is most needed.
The report calls on governments to restructure capacity markets to reduce support for gas and direct funds to low-carbon technology, and to set end dates for the use of unabated gas in power generation.
Coal plants are also suffering from the increasing viability of renewables and policies designed to lower carbon emissions. According to one study, in the last five years more China-linked coal-fired power capacity has been shelved or cancelled than commissioned.
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