Duke Energy Climate Report charts fossil fuel-laden path to net-zero, lagging behind peers

Key Points:

• Duke Energy released a new climate report describing potential pathways to achieve net-zero carbon emissions by 2050. Its main scenario relies heavily on fossil gas expansion, offsets, and unproven carbon capture technology, inaccurately painting renewables and storage at the scale needed to decarbonize as untenable.
• The analysis demonstrates how Duke lags behind other utilities in both the speed and scale of its energy transition. Numerous peer companies have already achieved greater renewables penetration than Duke would attain by 2050 in the scenario the report presents.
• Duke’s flawed report fails to examine the scenario’s impact on rates, potentially lower-cost pathways to decarbonize using more renewables, or impacts of climate change on Duke’s system and business. Contrary to its assertions in the report, the utility’s executive pay structure and policy advocacy are not conducive to a net-zero transition.

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In a new climate report that Duke Energy released last week presenting pathways to achieve net-zero carbon emissions by 2050, the company confirmed that it plans to rely on fossil gas, offsets, and unproven carbon capture technology, while discounting the feasibility of energy storage and renewable energy on flawed grounds. This pathway solidifies Duke’s position far behind peer utilities who have committed to full decarbonization. Duke’s pathway also fails to adequately model cost or climate considerations, and details policy and compensation efforts at odds with realizing a clean electric grid.

Duke net-zero scenario doubles down on fossil fuels and offsets, despite unaddressed risks

Far from charting a course to full decarbonization, Duke’s net-zero scenario shows renewables comprising only 29% of its generation mix by 2040 and 36% by its 2050 endpoint. The utility insists fossil gas expansion is essential to achieving a cost-effective, reliable net-zero scenario and enabling coal retirements. Between 2019 and 2030, the share of fossil gas in Duke’s generation mix would increase from 31% to 42%. By 2050, 23% of Duke’s system capacity would still come from fossil gas. 

Duke’s analysis further includes continued operation of a highly uneconomic coal plant – the Edwardsport Integrated Gasification Combined-Cycle (IGCC) facility in Indiana – through 2045. The Indiana Utilities Regulatory Commission is currently examining whether the Edwardsport plant is costing customers money simply to operate, with expert witnesses for the Sierra Club providing testimony that Duke lost its customers nearly $7 million by running the plant in the final quarter of 2019 alone.

The net-zero scenario presented would also require Duke to purchase millions of offsets in lieu of fully decarbonizing. The offsets will be necessary to paper over the eight million tons of CO2 that Duke will still emit in 2050, due to its deriving six percent of generation from fossil gas in that year. The utility’s net-zero goal contains no specific methane reduction commitments. Duke’s report predicts the company’s fossil gas expansion will increase methane emissions, offering only to “carefully evaluat[e] […] potential avenues to reduce them further”.

Duke’s report avoids any meaningful discussion of the risks of its reliance on fossil resources. The utility’s discussion of mitigating stranded asset risk to new gas infrastructure is limited to unspecified stakeholder engagement, and does not enumerate any actionable steps. 

“To mitigate the risk of stranded assets,” the report says, “we will engage with regulators – and with stakeholders – prior to retiring existing assets or making investments in new generating capacity. This robust regulatory approach supports our future ability to recover costs as we position our fleet for the transition to lower carbon emissions”. Duke assumes that its new natural gas combined-cycle units constructed in the 2020s will have a 20-year book life. There is no set lifetime for gas plants, but many utilities assume lifetimes for combined-cycle plants of 30 or more years; shorter lifetimes means fewer years over which to spread costs for Duke’s customers, which could lead to steep rate increases from the gas plants. 

Duke likewise identifies insurance risks to continuing to run coal facilities, and indicates its ramp-down of most plants intends to address this: “Property insurance companies have said publicly that they intend to stop providing insurance to companies that have above a certain amount of coal generation, or have said that they will only provide coverage if a company has a plan to decrease that over a reasonable period of time”. However, many insurance companies are still forming policies, and it’s not at all clear that Duke’s coal phase-out plans will meet insurers’ evolving thresholds if the company continues burning coal well into the 2040s – far longer than the timeline that peer utilities such as Arizona Public Service, NIPSCO, Consumers Energy, and Xcel Energy are pursuing.

Report raises flimsy objections to boosting renewables, storage in net-zero plan

Duke justifies its dirty energy investments on the basis of the claim that full decarbonization would necessitate installing excessive energy storage. Under this pathway, Duke says that it would need to add over 15,000 MW of energy storage by 2030, “more than 17 times the entire battery storage capacity of the United States today.” But in its own plans, Duke already projects bringing online 4,000 MW of storage by 2020 – four and a half times current total U.S. energy storage capacity.

Furthermore, Duke dismisses its capacity to install renewables and solar at greater scale owing to challenges with “regulatory approvals and permitting, interconnection studies and associated upgrades”. However, many of these concerns are the direct result of Duke’s own systems planning decisions to date, in addition to corporate policy advocacy that has opposed the growth of clean energy. 

The report goes on to rest Duke’s objections to the cost of storage required to decarbonize at the feet of its poorest and most vulnerable customers – a common utility strawman argument invoked by Duke in past renewable energy proceedings. “If such an amount of storage is possible from an operational standpoint, we found that the incremental costs of achieving net-zero under this sensitivity would increase by three to four times above that of the net-zero scenario that utilizes natural gas,” the utility writes. ”These costs could especially have an impact on Duke Energy’s low- and fixed-income customers.”

Duke net-zero scenario overly reliant on unproven CCS – at great cost risk 

While eschewing larger-scale deployments of available tools like energy storage, Duke’s net-zero scenario relies on building out costly, commercially unviable technologies at significant levels – so-called “zero-emitting load-following resources” (ZELFRs) that can be dispatched to fulfill energy demand. These include carbon capture and storage (CCS), hydrogen and biogas that Duke and other utilities have branded “renewable natural gas,” small modular nuclear reactors, and seasonal-duration storage. The scenario Duke presents relies on adding 12% capacity from ZELFRs by 2050. In that year, ZELFRs would comprise 30% of generation, as compared to 36% from currently mainstream renewable technologies.

The per-kilowatt cost of Duke’s proposed ZELFRs is exorbitant compared to solar, wind, and storage. According to Duke’s calculations, a gas combined-cycle plant with CCS is more than twice as expensive as an equivalent amount of solar, as is small modular nuclear compared to offshore wind.

Duke Energy Cost of ZELFRs vs. Renewable Resources (Per Kilowatt)

Source: Duke Energy 2020 Climate Report

While Duke’s net-zero scenario relies heavily on CCS, it’s not clear that the geology of the bulk of its service territories can support sequestration. A report that Duke and other utilities commissioned in 2008 said that “Most of the power plants in the Carolinas are underlain by geologic units that are not suitable for long-term storage of large volumes of CO2,” meaning that “[s]ubsurface storage of CO2 generated in the Carolinas will probably require construction of pipelines to geologic sinks located some distance away from the power plants.” 

Duke specifies its cost estimates for gas combined-cycle plants equipped with CCS are “at the fence line; cost to transport CO2, which is highly dependent on location, as well as the cost of injection, would be additional”. Without a national CO2 pipeline system, it is unclear how Duke would transport captured carbon to geologies that can sequester it. Even with such infrastructure, additional transportation costs could be exorbitant.

Duke’s only existing experience with CCS amounts to its attempt to install CCS technology at its Edwardsport plant, a boondoggle that became what one analyst called “an economic catastrophe for ratepayers”, and which never ultimately functioned as a CCS plant.

In renewables transition, Duke outrun by peer utilities

Duke states in the report that it is “unaware of any electric utility in the U.S. that has attempted to serve customers reliably at scale with such a high proportion of capacity from energy storage”. While it is true that no utility has attained this outcome, as we are in the midst of the energy transition, multiple utilities are now planning to fully decarbonize, including massive renewables and storage investments in lieu of new fossil fuel infrastructure.

Duke’s reliance on fossil gas to achieve net-zero stands in stark contrast to commitments from peer utilities such as PSEG, Consumers Energy, and NIPSCO, all of which have pledged to forego new gas plant development. Others, such as APS and Xcel, have committed to fully decarbonizing by 2050 without the use of offsets. 

Moreover, Duke will lag far behind many of its peers’ current levels of renewables deployment even at the endpoint of its net-zero pathway. Under the scenario laid out in its climate report, Duke would not attain the same amount of renewable energy as a percentage of its fuel mix in 30 years that some of its peer utilities have already achieved today. For instance, MidAmerican Energy derived 44% of its electricity mix from wind in 2019. Duke says that it will generate only 29% of its electricity from renewables in 2040, and 36% in 2050. Three California utilities – Pacific Gas & Electric, San Diego Gas & Electric, and Southern California Edison – all already source at least 40% of their electricity from renewables.

Renewables as a Percentage of Power Mix: Selected Utilities 2018-2019 vs. Duke 2050 Net-Zero Scenario

Sources: PG&E, SDG&E, and SCE Power Content Label; MidAmerican and Xcel SEC Form 10-K

Duke analysis fails to model lower-cost renewables pathways, climate changes

Duke’s heavily caveated analysis represents a missed opportunity to undertake the robust modeling required to establish a viable pathway to net-zero. For instance, the report does not model the cost to consumers of the net-zero scenario presented, nor those of alternative avenues to this goal that do not entail the continued development of fossil gas assets. A company spokesman said that modeling electricity prices out to 2050 “would be highly speculative and dependent on the regulatory constructions in each of our jurisdictions,” and that the utility “did not want to speculate in a high-profile report that would cause confusion.”

The utility cherry-picks from available research to claim “several recent studies […] all conclude that further additions of renewables above 40% – 50% of energy served have diminishing value and become increasingly uneconomic for carbon reduction”. To the contrary, GridLab has modeled a “Clean Energy Future” alternative to Duke’s Integrated Resource Plan in the Carolinas “that included no new gas, reduced coal dramatically, and relied instead on solar and batteries. This clean energy future cost less, dramatically reduced emissions, and increased health outcomes”.

Duke also states that its analysis is predicated on the assumption of “normal weather (averages over the past 30 years)”. This is a fundamentally flawed baseline, given the increased risks to Duke’s service territories of severe weather events related to climate change, including those chronicled by a January 2020 Moody’s report. Duke’s own Cautionary Statement Regarding Forward-looking Information lists as a risk factor “[t]he influence of weather and other natural phenomena on operations, including the economic, operational, and other effects of severe storms, hurricanes, droughts, earthquakes and tornadoes, including extreme weather associated with climate change”.

Duke indicates its net-zero pathway should fall within the range of scenarios consistent with limiting global warming to 1.5 to 2 degrees Celsius, but caveats that “global scenarios have limited value as benchmarks for assessing company strategies for a variety of reasons, including that the aggregate scenarios do not represent the unique circumstances, uncertainties, and risks relevant to individual companies”. The company does not commit that its net-zero pathway is harmonious with achieving the limit in warming called for by the Paris Agreement or analysis from the Intergovernmental Panel on Climate Change (IPCC). The 2018 IPCC special report specifically notes that “[a] robust feature of 1.5°C-consistent pathways […] is a virtually full decarbonization of the power sector around mid-century” – a threshold that Duke’s net-zero scenario fails to meet, given its continued use of fossil gas in 2050.

Duke’s report additionally “did not explicitly account for transmission and distribution needs in its analysis. The company states that “highly technical analysis is needed to ensure that the ‘perfect foresight’ assumption is not masking potential system reliability challenges that would need to be addressed”, but fails to undertake or commit to undertaking such efforts.

Duke’s transition undermined by company’s political activities, executive pay 

Duke’s climate report attempts to convince investors concerned with  environmental, social, and governance (ESG) issues that its other corporate policies align with its net-zero goal. For instance, the company touts that its executive compensation is tied to “zero-carbon generation” and “environmental events” metrics. However, those incentives are vague, and their weighting is negligible as a percentage of annual incentive pay considerations: less than one percent each for “nuclear optimized reliability” and “renewables availability”, and two and a half percent tied to “reported environmental events”, according to Duke’s most recent proxy filing.

Duke likewise seeks to justify its ongoing participation in trade associations that deny climate science or obstruct the deployment of renewable energy. The company writes:

We may not support each of the initiatives of every organization in which we participate or align in strategy with every position of every organization; however, in our interactions with them, we seek to harmonize the organizations’ positions on climate change with those of Duke Energy. We believe our continued input into these discussions with organizations with whom we may not always totally agree enables us to educate others on our positions and enables us to better understand their positions.

Duke continues to engage with the climate change-denying American Legislative Exchange Council and specifically with its Energy, Environment and Agriculture Task Force. Duke has presented no evidence that it has used its role in that organization to “harmonize the organizations’ positions on climate change with those of Duke Energy”. As one example, ALEC, along with investor-owned utility trade association the Edison Electric Institute (EEI) – of which Duke is also a member – promoted model legislation to criminalize protests of pipelines. Duke supported the same legislation with its own lobbying at the state level.

Duke goes on to highlight various sustainability policy initiatives in which it is a participant as evidence of its ESG commitments, including those through EEI and the Electric Power Research Institute (EPRI). EEI has lobbied against various policies that would support decarbonization; EPRI issued a paper casting doubt on whether it is possible for utilities to set science-based targets, and in the same paper it overhyped scientific uncertainty about the need for electric utilities to decarbonize.

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