Downstream gas infrastructure (including gas-to-power) is significantly less impacted by both stranded asset and carbon lock-in risk than upstream or midstream infrastructure. The severity of these risks varies significantly, both by technology and by segment of the value chain. These risks are lower for downstream gas than for other types of gas infrastructure But in certain cases, an asset that is no longer economically competitive could be kept running (for example, for political reasons) – locking the system into both continued emissions and an economically inefficient generation source. In some ways, the risks of lock-in and stranding are mutually exclusive: generally, you would expect lock-in to occur only when the asset is economically viable, which implies it’s not stranded. The Risk of Carbon Lock-InĬarbon lock-in refers to the concern that investments in carbon-intensive infrastructure today will delay or foreclose a clean energy future by making it too difficult or too expensive to transition to alternative energies, thereby ‘locking’ a country into a fossil fuel-dependent development pathway. A world with more stringent carbon policies will generally increase stranding risk. For example, a gas-fired power plant might become ‘stranded’ if operating costs increase dramatically and the plant can no longer run profitably – or if the government decides it must shut-down the plant early in order to meet its climate objectives. policy interventions limit demand or preemptively curtail the asset’s use). market dynamics make the asset too expensive to operate profitably) or regulatory factors (e.g. What do these concepts actually mean, what danger do they pose, and to whom? The Risk of Stranded AssetsĪn asset becomes stranded when it can no longer earn a return on investment, due either to economic factors (e.g. Skeptics of financing gas-to-power projects in emerging markets frequently cite two related (but distinct) concerns: ‘stranded assets’ and ‘carbon lock-in’. Although this analysis focuses on gas for electricity production, many countries also consider downstream natural gas to be critical – at least for now – to petrochemical production, fertilizer, and cleaner cooking. Biomass can have lower life cycle emissions, but comes with high air quality impacts and the potential for significant impacts on local ecosystems. Available alternatives to generate necessary heat inputs are either more carbon intensive (in the case of diesel and coal) or not yet commercially viable – particularly in emerging markets (in the case of green hydrogen). Many developing economies seeking to grow these sectors use natural gas-fired combined heat and power (CHP) facilities to enable efficient co-production of both electricity and heat. Industrial and manufacturing processes use huge quantities of heat, representing about a quarter of total world energy use. ![]() In this context, dispatchable gas-fired power can provide power now while enabling the expansion of wind and solar deployment. But in many emerging and frontier markets, these sources are still limited: many lack geothermal and hydropower resources, nuclear is not currently viable, and storage solutions are not yet affordable at the scale required, or become cost-prohibitive at durations longer than a few hours. Ideally, variable renewable power can be balanced with firm low-carbon sources like geothermal, hydropower or nuclear – and/or with battery storage. Provide firm power to meet immediate needs and balance expanding fleets of variable wind and solar generation.That said, some energy-poor countries, facing rapidly growing demand and current market limitations, see strategic near-term development of gas-fired power as a way to: The costs of wind and solar have fallen dramatically – and most projections agree that renewable energy will supply the bulk of future electricity in developing economies. First, why would a low-income country even consider gas-fired power? But it also creates tension – as countries, investors, and development partners debate whether, how, and under what circumstances to support new gas-fired infrastructure as part of an energy transition. This creates exciting opportunities to build out power systems in new, cleaner ways. At the same time, many of the world’s poorest countries (most of which emit very little), must end chronic energy poverty as quickly as possible in order to improve lives and employ their growing populations. In the face of intensifying climate change impacts, we must shift decisively away from unabated fossil fuels. What are the risks associated with new gas-fired power in developing economies, and how can we mitigate them?
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