Dive Brief:

• Duke Energy could leave customers on the hook for $4.8 billion in stranded fossil fuel assets through 2074, based on its current long-term integrated resource plans (IRPs) in the Carolinas, according to a report released Monday from the Energy Transition Institute and Vote Solar.

• The utility's long-term resource plans could add up to 9.6 GW of new gas resources as it aims to reach 100% carbon-free generation by 2050. A "substantial" amount of that capacity will need to come offline before mid-century in order to meet those goals, according to the report, which could cost customers billions of dollars in unnecessary costs.

• The report finds that Duke's base-case planning scenario assumes a carbon price would keep 14 GW of gas generation online by 2050, and would miss its zero-carbon commitment by approximately 30 million metric tons of carbon dioxide. That will require either significant investment in carbon-reducing technologies, or will leave those assets stranded, likely to be recovered by either customers or shareholders.

Dive Insight:

More and more large investor-owned utilities are announcing ambitious clean energy plans — many aiming to reach net-zero emissions by mid-century. But an increasing number of reports are finding that utilities are not planning investments consistent with the ambition of their stated goals.

The report "Carbon Stranding" warns that Duke's resource plans are also inconsistent with its goals, and quantifies how much gas investments will cost customers as the utility moves toward a lower carbon system. The stranded asset problem has largely played out in the coal sector so far — as new gas, solar and wind projects drop below the cost of existing coal assets, coal plants are no longer the cheapest asset to operate, and are retiring before their costs are fully depreciated. Clean energy groups and economists warn this phenomenon could replicate in the gas sector over the next three decades, as clean energy portfolios replace gas as the cheaper generation option.

Duke aims to reduce carbon emissions 50% below 2005 levels by 2030, and in its latest IRPs filed with regulators in North and South Carolina in September also mapped out potential avenues for the utility to reach 70% carbon reductions by 2030. The IRPs lay out six scenarios, and outside their "no new gas" plan, propose to build out anywhere from 6.1 GW to 9.6 GW of new gas infrastructure. Monday's report is mostly critical of its base-case scenario, which would add more gas, calculating the scenario could cost customers billions in stranded assets.

"If implemented as written, the plans would create a material tension between operating a newly-built fleet of gas-fired generation through their engineering lifetime and meeting a net-zero carbon commitment," the report finds.

A Duke spokesperson in an email said "there's virtually no way to validate the assumptions and conclusions in this report," adding that its "scenario of building no new natural gas sounds simple, but it's the most expensive option for our customers and actually requires coal units to operate longer. It also relies heavily on emerging technologies and could present challenges in reliability for the families, businesses and industries who rely on us."

"Duke Energy remains committed to constructive dialogue about policies that will benefit all our customers across the Carolinas," spokesperson Phil Sgro said.

Duke does define some ways it will decarbonize with gas in its IRP — it offers hydrogen infusion, carbon capture and storage, biofuels and accelerated depreciation as ways to make its gas facilities carbon-free or pay off those debts quicker.

But though hydrogen is gaining steam as a potential alternative fuel, other methods like carbon capture and biofuels may be less feasible. Duke notes in its own IRPs that "deployment of carbon capture in the Carolinas would likely be dependent on interstate transportation infrastructure or innovative utilization opportunities due to a lack of suitable geology for CO2 storage," and biofuels are not thought likely to scale.

Many are also critical of the idea of accelerated depreciation — which would shorten the payment period for a plant, assuming that plant's valuable lifetime will be shortened.

"Accelerated depreciation used in this way would allow Duke Energy to build new gas-fired generation with the expectation that these assets would become stranded midway through their lifetimes, while charging ratepayers a premium and insulating the utility from any stranded value," according to the the report. 

Because the utility does not calculate the costs of any of these new technologies or accounting methods in its IRPs, the "Carbon Stranding" report attempts instead to calculate the cost to customers assuming the utility's base-case planning scenario. It models the amount of capacity that will need to come offline in order for Duke to meet its 2050 goals, then calculates the depreciation and return on investment costs for stranded capacity. 

Based on this analysis, the report finds that through 2035 "carbon stranding" costs, or the costs of stranded assets based on what the utility will need to retire in order to meet its intermittent emissions goals, will cost $50 million annually. By 2050, those costs increase to $175 million annually, with combined cycle gas plants and coal plants making up the majority of those costs. In total, the base case scenario would cost $2.8 billion (in 2020 value) through 2050, and $4.8 billion in non-operating gas costs by 2075.

For utilities like Duke that are rate-regulated, much, if not all, of those costs will fall to ratepayers. Changing economics for coal are already proving this out — many utilities retiring coal plants before the end of their depreciation life are recovering those costs through the regulated rate base.

"Companies are good at getting these plants in the ground," said Tyler Fitch, lead author of the report and regulatory manager at Vote Solar. "And so in the absence of what would be kind of a norm-breaking intervention by the Commission, it's likely that this would come out of ratepayers pocketbooks."