Unabated gas plants’ future role in the power system should be predominantly limited to backup reserve to allow for flexible low carbon forms of supply to fully emerge.

This report is Carbon Tracker’s first in a series which calls into question the case for long-term investment in gas-fired power plants globally. Following on from Do Not Revive Coal report, Put Gas on Standby, switches attention to the fossil fuel that has long been viewed as a major part of the long-term climate solution.

Put Gas on Standby finds that more than a fifth of European gas-fired power plants and nearly a third of US units are lossmaking, and surging fuel prices risk sending many more into the red. Gas has a limited role in supporting the power system as coal plants close and renewables expand, but 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.

Both new onshore wind and solar investment options are already cheaper than the costs associated with the continued operation of existing gas plants in the US, and we project the costs for both renewable technologies will fall to levels less than half the LRMC for gas by 2030.

Figure 1: Long Run Marginal Cost (LRMC) of operating gas versus Levelised Cost of Energy (LCOE) of new renewables today

Source: Carbon Tracker analysis

The economics for new gas in Europe and the US are very weak. During most years, Earning Before Interest Tax Depreciation and Ammortisation (EBITDA) revenues are insufficient to repay debt and taxes, while in later years cashflows remain negative owing to negative profitability overall.

Figure 2: Aggregate lifetime undiscounted cash flows for planned new build gas in Europe and US

Source: Carbon Tracker analysis

Key Findings

  • The decline of gas’ power sector role is already underway.
  • The economics of gas-fired power generation in Europe and the US are growing in fragility.
  • Capacity payments will not save all gas plants.
  • Existing gas capacity modelled is already more expensive to operate than new renewables.
  • Renewables with battery storage installed will also be cheaper to run than gas units by the end of the decade.
  • Most new build gas capacity planned will be unable to recover initial investment and should be cancelled.
  • Continued long-term operation of unabated gas is incompatible with legally- binding climate targets.
  • Close to $16 bn could be stranded if gas-fired assets are closed in line with the timeframe required to deliver net zero emissions by 2050.
  • An additional $16 bn could be saved however by closing loss-making gas plants early in line with a net zero 2050 target.