Increased prices for gas turbines persist, leaving no foreseeable decrease on the horizon
The energy industry is facing a significant challenge with the rising prices and delays in the delivery of gas turbines, as revealed in a new report from GridLab, Energy Futures Group, Component Reliability Consultants, and Halcyon.
The report, which attempts to quantify the increasing costs of gas infrastructure that are often kept confidential in public documents, warns that relying on outdated price assumptions for gas turbines can lead to flawed resource planning and underestimation of project budgets.
The demand for gas turbines is soaring, with costs for a combined-cycle gas turbine now exceeding $2,000 per kilowatt in projects slated for completion in 2030 or 2031. Major gas turbine OEMs like GE Vernova, Siemens Energy, and Mitsubishi Power are reporting strong demand and robust order backlogs.
The delays in installing high-price turbines are extending to new combined-cycle resources, with many looking at coming online in 2030 or 2031. 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 report suggests that the market is experiencing an unexpected boom in demand, which is a stark departure from historical cost assumptions and public cost projections. The surge in demand for gas is primarily due to a combination of electrification, onshoring, and data centers causing major load growth in the U.S.
The search results do not provide information about the three companies that have made reservation payments to secure manufacturing capacity according to the report. Labor costs are increasing due to inflation and a shortage of skilled workers, adding to the overall cost of gas turbines.
The need for substantial reservation fees also affects project financing and risk. Some utilities are now required to pay reservation fees to secure a manufacturing slot for gas turbines, with one example being a $25 million reservation fee paid to GE Vernova for a turbine delivery in 2030.
The authors of the report recommend that loads like data centers evaluate flexible alternatives to gas, including utility-scale solar, wind, and battery storage. They also suggest that regulators and planners update their cost assumptions accordingly and prioritise the transparency of any non-proprietary pricing data.
Despite the challenges posed by rising gas turbine prices and delays, renewables are still seen as the best option for getting new megawatts onto the grid, according to NextEra CEO John Ketchum. Renewables are meeting much of the new demand for energy, but the reliability requirements of data centers have prompted a surge of demand for gas.
The elevated costs for gas turbines are expected to persist in the short-midterm, representing a jump of up to 75% over near-term prices. This cost increase is likely to be passed on to utility customers in the form of higher bills. The report urges regulators, planners, and utilities to carefully consider these factors in their future energy planning and resource allocation decisions.
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