- Amid a boom in clean-energy alternatives, investors are rejecting natural gas.
- The once-hailed bridge from coal-fired generation is being replaced by renewables.
- Continued use of gas could derail timelines to achieve climate targets and hang investors out to dry.
As wind and solar energy go mainstream, many investors are turning their backs on natural gas.
Once hailed as the bridge from dirty coal-fired power generation to clean energy, gas looked like a certain bet just a few years ago. But that’s changed as the cost of wind and solar infrastructure has plummeted. And clean-energy advocates have concluded that clinging to gas for too much longer may derail efforts to reach climate targets.
Wall Street has taken note. For the first time in about a decade, investors are unwilling to pay more for shares of gas utilities than electric ones, Bloomberg reported. The Standard and Poor’s Gas Utilities Index is trading at an average of 16.7 times projected earnings, while the S&P’s electric utilities index is trading at 17.1, weekly data compiled by Bloomberg show.
“The natural gas bridge is likely already behind us,” according to 2019 research from the Rocky Mountain Institute, a sustainability nonprofit. “Continued investment in announced gas projects risk creating tens of billions of dollars in stranded costs by the mid-2030s, when new gas plants and pipelines will rapidly become uneconomic as clean energy costs continue to fall.”
The problem is twofold, with risks to investors in both gas-fired power plants and pipeline infrastructure. Just as gas forced the retirement of many more-expensive coal plants, cheap wind, power and storage may rapidly make gas plants unprofitable. Without demand, gas pipelines may become obsolete. And many municipal regulators are banning new gas infrastructure.
For now, gas remains important as a primary U.S. energy source, but the question is how long the gas “bridge” will last.
It could be a while. Mark Florian, BlackRock’s head of energy and power infrastructure funds, told Bloomberg: “My sense is it hasn’t really impacted natural gas company valuations at this point, but I think it’s a risk to monitor.”
The latest long-term forecast from the government also shows that gas will be a player, even in power generation, for decades to come.
While power generation from renewables is set to double through 2050, the boom will mostly come at the expense of nuclear and coal plants, not gas, according to the U.S. Energy Information Administration’s Annual Energy Outlook 2020, released in January. Gas’s share of electricity generation, currently 37%, is forecast to peak in 2021 but rebound to 36% in 2050, the outlook showed.