As demand from large tech companies for uninterruptible electricity supplies rises, natural gas will likely account for the majority of incremental capacity additions until long-duration energy storage technology can serve as a baseload power source, industry analysts said.
Even though renewables will dominate new US generation in 2024 and developers are signing contracts to supply electricity to datacenters, there will not be enough energy storage capacity on the grid in the near term to ensure round-the-clock reliability for new "large load" customers, according to an April 1 report from S&P Global Ratings.
"Intermittent capacity has replaced baseload capacity, resulting in not only seasonal shortages but increasing intraday price spikes," the Ratings analysts wrote. "Regardless of the fact that storage is being installed aggressively, we believe this deficit is difficult to overcome and a 'firming premium' will stubbornly persist through 2030, all else equal."
Raymond James analysts agreed that existing renewables storage in the form of lithium-ion batteries, which discharge energy for up to four hours, does not sufficiently accommodate hyperscalers' needs.
While some operators of multi-unit nuclear plants may follow Talen Energy Corp.'s example to provide behind-the-meter power to datacenters from a reactor, there is virtually no new planned nuclear capacity, leaving gas "the only solution to fill the void in the short term," Raymond James analysts added in an April 24 note.
"Renewables [power purchase agreements] purportedly matching for 24/7 load demand actually create a false sense of security from a grid perspective," Raymond James analysts wrote. "Renewables' intermittency and inability to meet the 24/7 demand of the data centers simply adds stress to the broader system that needs to ramp daily and seasonally to compensate for imperfect renewables generation matching with demand."
Datacenters alone could drive approximately 10 Bcf/d of gas demand through 2030, according to Raymond James analysts.
Appalachian shale gas driller EQT Corp. estimated coal retirements and datacenter buildouts combined "could generate up to 6 Bcf a day of incremental natural gas power demand in our own backyard by 2030," President and CEO Toby Rice said during an April 24 earnings conference call.
Many utilities plan to build more gas generation as increased load forecasts prompt updates to long-term resource plans while new renewables technologies progress toward commercialization.
Gas-focused independent power producer Calpine Corp. has "seen significant demand for more bespoke products and more bespoke matching of generation with usage" as datacenters seek electricity supplies, Canada Pension Plan Investment Board Director of Sustainable Energies Edwina Kelly said during an April 17 conference.
The pension fund is part of an investor consortium that took Calpine private in 2018.
"No one we speak with now views natural gas generation as a bridge [to renewables]," the S&P Global Ratings analysts noted. "Transitions take time and have unintended consequences. This is one of them."
Still, "standalone storage is now an increasingly viable option for grid stability and ancillary services relative to traditional quick-start fossil units," they acknowledged.
Evolving battery tech
Analysts at Morgan Stanley said in an April 25 report that "progress in cost reduction and commercialization of several energy storage technologies has been greater than appreciated," noting Form Energy Inc.'s iron-air battery technology.
The California Energy Commission in December 2023 adopted a resolution allowing Form Energy to build and operate its East Road Storage Project, touted as the state's first multiday battery storage resource. Form Energy aims to commission the project in 2025 and operate it for at least five years, testing various use cases for the 100-hour storage system.
"We believe metal-air batteries have the potential to displace natural gas-fired power plants in the future, allowing for very high renewables penetration while maintaining grid reliability and avoiding high power price inflation" after 2030, Morgan Stanley analysts wrote.
Form Energy and Xcel Energy Inc. have also announced definitive agreements to deploy multiday batteries at two of the utility company's retiring coal plants in Colorado and Minnesota. The storage assets are expected to come online by 2025.