Gas plant costs rise – new study
Renewables are cheaper than gas-fired power plants, even without subsidies, a new study finds. Demand has risen for gas power, but cost inflation has hit the sector.
Renewable energy is the “most cost-competitive form of new-build generation” in the U.S. on a levelized cost of electricity basis, even without subsidies, according to a new study.
Utility-scale solar PV projects range from $40 to $98 per megawatt-hour and onshore wind ranges from $37 to $99/MWh. By comparison, combined-cycle gas (CCGT) costs between $51 and $129/MWh.
Taking the average, combined-cycle gas plants cost $90/MWh, according to the study published by Lazard, a financial advisory firm. That is a notable increase from $78/MWh in 2025.
All types of power generation saw cost increases in the past year, including renewable projects, due to capacity costs, interest rates, tariffs, and supply chain repricing.
But the gas sector is suffering from additional cost inflation because of the backlog in the market for gas turbines. Costs have skyrocketed as a result, dramatically driving up the cost of new gas-fired power plants.
GE Vernova, one of the most prominent manufacturers of gas turbines, has an order backlog that stretches on for years. A customer ordering a gas turbine today can expect delivery in 2031 at the earliest.
The data centre construction craze is one of the main sources of demand, putting a strain on the electric grid. New generation capacity is needed to meet rising demand. U.S. utilities are set to invest $1.4 trillion over the next five years, an increase of 20 percent from year-ago projections.
“One aspect of the problem that’s no doubt increasing costs is the sheer demand from hyperscalers, who are all now fighting over procurement. They are driving up costs on the short-end of the curve to the point that developers are all looking at non-CCGT gas solutions for speed-to-power solutions,” Advait Arun, senior associate for energy finance at the Center for Public Enterprise, a New York-based think tank, told Gas Outlook.
“We see this across the whole hyperscaler space: the sheer scale and urgency of demand has brought prices for a lot of the industry up far higher than any other customer is willing to pay.”
Data centres are also putting pressure on the supply chains of other equipment, which is also impacting renewable projects, according to Brendan Pierpont, director of electricity modelling at Energy Innovation, a California-based think tank. He pointed to transformers, which are necessary for any generation project, and to the strained pool of labour.
But Pierpont said that despite the demand for gas turbines, which is largely driven by new data centres, in reality new electricity capacity is overwhelmingly coming from solar.
“You look to Texas as an example. Texas is the state that’s seen the most rapid demand growth in the country over the last five years or so. And to meet that demand growth, they’ve built almost entirely new solar and energy storage resources,” he said.
“Around 90 percent is solar, energy storage and wind. Gas construction is picking up a bit, but it’s not picking up at the scale that kind of shows up in the narrative. So it is really important to look at what’s happening on the ground.”
Lazard echoed that conclusion in its report. “Wind, solar and storage are expected to continue to account for the majority of near-term U.S. capacity additions given their relatively short deployment timeline,” the firm said.
Pierpont said that the rush for data centre developers to build gas-fired power plants, especially off-grid, exhibits “a certain amount of lazy thinking.”
“I think that many of the data center developers that are pursuing that path, particularly that on-site gas generation path, are likely in for a pretty rude awakening,” he said. “They’re essentially creating their own tiny island grid and with fewer redundancies and not benefiting from the scale of the grid that we have to help kind of smooth out issues.”
The result may be higher costs for those projects and an overbuilding of capacity.
Even as the Lazard study frames renewables as cost competitive with gas, there are other “hidden costs” that likely make gas projects even pricier, Pierpont said.
“That power plant is going to need a lateral pipeline that connects it to a main source of gas. That might trigger the need for compressor stations on that pipeline to move more gas,” he said. “You probably need a firm pipeline contract so that when a winter storm hits, you’re not the first one to get curtailed off the gas system.”
These costs are hidden from the basic cost picture, but they’re often bundled into the cost of the fuel, he added.
A June report from GridLab, a California-based research organisation, details the “hidden costs” of new gas-fired power plants. These often include pipeline projects with substantial price tags that are not included in the cost of the power plant, but which are ultimately passed onto electricity customers anyways. In one particular case in Wisconsin, the additional gas infrastructure costs added another 30 percent to the total cost of the proposed power plant project.
Gas-fired power plants are often framed as desirable because they are “firm” and “dispatchable.” The always-on nature of fossil fuel projects lends them an advantage over intermittent renewable energy.
But the Lazard study points to an interesting new development in the U.S., where gas-fired power plants have been penalized for a pattern of blackouts and disruptions, particularly from extreme weather. Winter storms have frozen off gas lines and forced power plants offline in Texas and Pennsylvania in recent years.
Gas plants have traditionally carried an “Effective Load Carrying Capability” factor of 90 to 95 percent, reflecting their high reliability in providing 24/7 power when the grid needed it.
That is no longer the case. In the PJM operating area – the electric grid that serves multiple mid-Atlantic states – combined-cycle gas plants have recently earned only a 78 percent ELCC rating. In other words, they are less reliable than they used to be, and as a result, earn less revenue on the capacity market, although higher electricity prices may have offset some of those losses.
“[There is] this realization that even though this is a dispatchable resource that you can turn on, if the fuel isn’t there, then it’s not going to turn on,” Pierpont said.