New natural gas power plants in the EU : -The risks of stranded assets under different fuel and carbon price scenarios

Sammanfattning: Current and planned fossil fuelled electricity generation is expected to meet or exceed the global carbon budget for 2°C, without including emissions from any other economic sector. At the current rate, the EU ETS will stop issuing new emissions allowances to industry and power plants before 2040. In August of 2022, both natural gas and ETS prices reached higher prices than ever before, and in this context significant capacity of natural gas power plants are being built in the EU.  The purpose of this study is to examine the economic prospects and asset stranding risks of combined-cycle power plants being built in the EU. This is analysed using nine different scenarios for carbon and natural gas price pathways. This is done by constructing a model of the German power plant fleet, creating a merit order curve through which electricity prices are modeled from 2023-2045 for each scenario. These prices are used as inputs for a discounted cash flow model to determine the net present value of a new build combined-cycle power plant. The results of the model indicate that such a power plant will have a negative net present value in all nine main scenarios, being economically uncompetitive in its last few years and likely decommissioned ahead of the end of its economic lifetime, thus becoming a stranded asset. Sensitivity analyses show that the power plant can achieve a positive economic return in specific circumstances, especially through the presence of a capacity market, or a fuel switch to hydrogen later in its lifetime. However, a hydrogen switch is still insufficient to yield profitability in the majority of scenarios. Thus, according to the results of this study, new build combined-cycle natural gas power plants are not a robust investment likely to achieve a positive net present value outside of countries with capacity markets designed to ensure their profitability.