Demand for gas turbines is soaring — and the price of a combined-cycle gas turbine is too, new research finds. Projects slated for completion in 2030 or 2031 are now “routinely reporting costs of $2,000 per kilowatt or more,” a jump of as much as 75% over near-term prices.
(As a point of comparison, projects that are slated to come online in the coming years reported costs of between $1,116 per kW and $1,427 per kW.)
These findings are the result of a collaboration of GridLab, Energy Futures Group, Component Reliability Consultants, and Halcyon. In their recent report, the authors attempt to put numbers to the anecdotes of rising prices for gas infrastructure, which is a surprisingly difficult task given that costs are also kept confidential in integrated resource plans and other public documents.
By pulling together what little data is available, though, the researchers provide a fuller picture of a market staggering under an unexpected boom in demand, one that is “a stark departure from historical cost assumptions and public cost projections.”
A combination of electrification, onshoring, and data centers has caused the U.S. to enter a period of major load growth. And while much of the new demand for energy is being met by renewables, the reliability requirements of especially data centers has prompted a surge of demand for gas.
“These elevated costs are likely to persist rather than decline, at least in the short-midterm,” the authors wrote; they add that this conclusion is supported by the financial reports of major gas turbine OEMs like GE Vernova, Siemens Energy, and Mitsubishi Power, who “are reporting strong demand and robust order backlogs.”
These three OEMs, they found, now require a reservation fee to secure a manufacturing slot; two Kentucky utilities, for instance, paid GE Vernova a $25 million reservation fee to reserve a turbine to be delivered in time for a facility to reach commercial operation in 2030.
And these are prices that will largely trickle down to utility customers in the form of higher bills. Utilities this year have already sought record rate increases, and electricity prices are increasingly a political sticking point.
For more on the gas turbine crunch, listen to Anthony Brough, founder and CEO of Dora Partners, speak with Shayle Kann on a recent episode of Catalyst:
Predictably, timelines for installing these high-price turbines are also getting longer. New combined-cycle resources often are looking at coming online in 2030 or 2031, a delay that is already complicating the tech industry’s race to build artificial intelligence infrastructure; increasingly, the AI race is a race to secure enough power.
The delays and higher prices are not just a function of the OEMs exercising their pricing power, however. Bottlenecks in engineering, procurement, and construction services (or EPC) are plaguing the energy industry more broadly, and contributing to delays.
And it’s not just the turbines themselves that are becoming more expensive. Nearly all components of a fossil gas power plant — from transformers to switchgears to iron and steel piping — have gotten pricier in the last decade. (The coronavirus pandemic took a particular toll on these supply chains.) Labor costs are also jumping due to inflation and a shortage of skilled workers.
The report warns that relying on outdated price assumptions for gas turbines “can lead to flawed resource planning and underestimation of project budgets.” They recommend that regulators and planners update their cost assumptions accordingly — and prioritize the transparency of any non-proprietary pricing data going forward, including via collaborative forums for stakeholders.
The stakes are high, and not just for individual projects. “The extended timelines for turbine delivery create a significant challenge for meeting future electricity demand, particularly as coal and other older fossil fuel plants are retired,” the authors write. “The need for substantial reservation fees also affects project financing and risk.”
They also recommend that loads like data centers evaluate flexible alternatives to gas, including utility-scale solar, wind, and battery storage.
This echoes the conclusions of certain major utilities that have concluded that renewables are the faster way of meeting the pressures of load growth. NextEra CEO John Ketchum has been particularly vocal about the fact that renewables are still the best option for getting new megawatts onto the grid, and fast — even as the company invests in new gas generation to meet longer-term needs.
“Renewables are here today,” said Ketchum on the company’s January earnings call. “You can build a wind project in 12 months, a storage facility in 15, and, you know, a solar project in 18 months.”
