This article is part of a series called North Carolina’s Gas Blowout. See the rest of this series as well as other resources on SACE’s Fossil Gas Hub.
When does a gas plant become too expensive?
The NC Utilities Commission is now deliberating that question for Duke Energy’s proposed second combined cycle gas plant near Roxboro in Person County. SACE and SELC made arguments in a post-hearing brief that the plant is too expensive and should not be approved. SACE’s witness, Lucy Metz from Synapse Energy Economics, Inc., made the case during the hearing that the plant costs would likely climb even higher, skyrocket due to tariffs and supply chain constraints. The Public Staff acknowledged that the proposed plant may not be the least-cost solution. And as of this writing, the NC Electric Membership Corporation, which is supposed to be a co-owner of the plant with Duke, still hasn’t signed a contract to own 225 MW of the 1,360 MW plant after years of negotiations — a bright red flag.
So yes, it’s too expensive.
SACE witness Metz further demonstrated that the second gas plant is not even needed to retire Roxboro coal units 2 and 3, as they operate at such low levels. Given the age of the coal plant, it is difficult and costly to operate, so it adds little energy to the grid, but Duke tried to justify this second gas plant in part on the implicit assumption that the coal units run at a maximum all the time. This tactic drastically overestimates the actual amount of replacement energy needed to retire them.
In the last Carbon Plan Integrated Resource Plan (CPIRP) order, the Commission cited testimony from Public Staff and agreed that Duke should not procure offshore wind energy at “any cost.” The same rule should apply to this gas plant, especially considering the fact that gas plants tie Duke’s customers to pipeline costs and increasing gas costs for decades. (Wind, on the other hand, is free.)
Duke is contracting for gas pipeline capacity at a time when other utilities, data centers, and LNG exports are also competing for capacity. In that competition, the data centers and LNG will always be able to pay more (data centers are highly profitable, and LNG marketers can get much higher prices overseas than they can in the US). Data centers are clustering near the Appalachian Basin to take advantage of nearby gas resources, while LNG is being sourced from the Texas basins. That leaves Duke in the middle, competing with both. The US is now the world’s top gas exporter, and this means our gas prices are also subject to the whims of world events, such as the invasion of Ukraine by Russia, which sent gas prices skyrocketing. Duke customers paid for that in our bills.
Winter reliability is yet another issue with gas plants. In the brief, SELC cited the Commission’s own December 2023 order, making findings after Winter Storm Elliott, and reminded the Commission that firm pipeline transportation contracts did not protect Duke from a reduction in pressure on the Transco pipeline after gas wellheads and pipeline equipment froze. Indeed, because there is no way to turn off the tap to pipeline customers north of us that have “interruptible” contracts rather than expensive “firm” contracts like Duke’s, many of those pipeline customers refused to curtail, further exacerbating the pressure problem. There is nothing to stop this from happening again.
Back to cost: Duke’s Indiana utility is requesting approval to build a 1,476 MW combined cycle gas plant that will cost $3.33 billion. Is that too expensive? Meanwhile, the Public Utility Commission of Texas is considering cost caps for two gas plants proposed by Entergy. The two plants have a combined capacity of 1,208 MW, and Entergy claims the cost of $1,800 per kW (or $2.17 billion) is 25% below market value (which would equate to $2,250 per kW, or $2.72 billion). The Texas PUC seems to think that it is definitely too expensive. The estimated price tag for Duke’s Roxboro plant is kept confidential, unfortunately, but these similar projects give us an idea, and clearly, the price tag is in the billions, not the millions.
Adding another large, expensive gas plant to Duke’s generation mix will leave ratepayers even more susceptible to reliability risk and rate shock. So what can the Commission do? As SACE and SELC proposed in their post-hearing brief, the NCUC can deny the request and order Duke to conduct an all-source RFP to determine what lower-cost resources are available. The Commission can require Duke to procure “no regrets” resources, such as solar and battery storage, while streamlining the ability for these resources to interconnect to the grid. If the Commission approves the plant, it can order Duke to shoulder some of the cost risks for both the gas and the construction cost escalation. SACE encourages the Commission to deny the request and to require an all-source RFP to make sure that Duke’s ratepayers are not paying for a plant that is simply too expensive.
