Calpine is America’s largest generator of electricity from natural gas. In competitive power markets from Maine to California, we generate enough electricity to power approximately 20 million homes and businesses. Last week, I was privileged to speak at the Federal Energy Regulatory Commission conference on carbon emissions reductions. We heard from industry leaders, experts and academics.
There is widespread agreement that aggressive carbon emissions reduction will be achieved only through economy-wide change. This will require the sweeping electrification of transportation, industrial processes, and home and commercial heating. This likely will lead to significant electric demand growth, meaning the generation sector will need to produce more – not less – electricity.
The power generation sector has already achieved dramatic decarbonization, outshining progress in other areas. Just look at California, where in-state electric generation now produces only about 10 percent of carbon emissions due to its early action in reducing emissions over the last decade, while transportation produces approximately 40 percent. In the New England region, electric generation produces less than 20 percent of carbon emissions, but transportation yields approximately 40 percent. The good news is that some further reductions in electricity generation are achievable through retirement of older, inefficient units, and the continued buildout of renewables should satisfy load growth. But an important factor that has become very clear is that existing, modern gas-fired generation capacity will be critical to reliability for the foreseeable future, even in a world of increased renewable power production. Allow me to explain.
Analyses performed by the Energy Futures Initiatives (led by former U.S. Energy Secretary Ernest Moniz) and E3, a prominent consulting firm that works for policymakers and power industry participants alike, demonstrate that enormous and ongoing investment in renewables and battery storage will not be enough to decarbonize the grid and maintain reliability without a staggering financial and land use cost. Consistent with this view, we need to retain existing natural gas power plants to enable greater deployment of renewable energy in a cost-effective manner. Gas generation will no longer be a primary source of electricity, but it will be the backstop for reliability in an electrified world. So, although over time natural gas may no longer be the workhorse of the grid, it will continue to be the lynchpin to reliability. As an example, this was true during the blackouts and during subsequent efforts to avoid further blackouts in California earlier this year.
Said differently, we see a future where efficient and reliable gas-powered plants serve as the mortar of a low-carbon economy. Economy-wide decarbonization requires more electricity. Wind and solar power provide carbonless energy, but they are intermittent, and hydropower suffers from seasonal variations and drought. Battery storage alone is insufficient to fill the gap when those resources are short on a daily or seasonal basis. Flexible and ever-ready natural gas generation fills that gap, enabling the use of more renewables while assuring reliability – when you flip the switch, the lights will go on, even if the wind isn’t blowing, the sun isn’t shining, the reservoir is low or the battery is drained. Some may see it as an irony, but retaining modern gas-fired power plants is the sine qua non to decarbonization and electric reliability. Although policymakers might suspend the law of economics in pursuit of a goal, they cannot suspend the laws of physics.
As to how we best achieve deep, economy-wide cuts in carbon emissions, we have long supported an economy-wide carbon price in a way that allows it to be reflected in all types of energy prices. This would drive energy choice decisions and the deployment of capital, while minimizing market distortions caused by subsidies or other one-off government mandates. In more practical terms, it would drive efficiency and electrification, and would eliminate the need for subsidies. The policy should be set by the government, then allowed to work through the markets.
The future is within reach, and America is poised to lead the way by harnessing fair, competitive markets to chart the shortest distance between where we are and where we need to be.
Thad Hill is the president and chief executive officer of Calpine Corp.
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