Exhibit 5 On a deep decarbonization pathway, the required capacity of flexible resources such as gas plants is likely to stay constant or grow.
Generation capacity metrics of natural gas and natural gas with carbon capture on a deep decarbonization pathway in 2050
Installed capacity compared to current state, multiples
Capacity factor, %
Warm climate, high renewables
Current
1×
50
Current High electrification Moderate electrification High electrification Moderate electrification
1.5×
10
1×
5
Cold climate, poor renewables
1×
50
3×
20
2×
2×
20
Source: McKinsey analysis
McKinsey & Company
concerned that forecast low utilization would make them unprofitable. This creates the danger that these flexible resources may not be sufficiently built, which could become a risk to system reliability. KEY PRIORITIES To improve the business case for dispatchable resources, system planners, utilities, generators, and policy makers could jointly establish and implement market mechanisms that would explicitly value resource flexibility. Stakeholders would need to consider three key priorities to develop market mechanisms and enhance flexibility. 1. Revise methodology for resource planning to avoid overstating firm capacity. As renewables become a larger share of generation, resource planning could be adapted to reflect the intermittency of these energy sources. Today, resource planners such as independent
system operators (ISOs) assign capacity credit to renewables. Overstating the capacity potential of a renewable resource could have severe implications. For example, the resource adequacy report released by MISO forecast that, based on existing and planned resources, it could fall short of capacity by 2027. However, if MISO’s renewables do not generate when expected—that is, if a zero percent capacity credit is applied to renewables—the operator could fall short of capacity as early as 2024, highlighting the need for additional flexibility in the very near term. Several ISOs, including MISO and PJM, are revising their methodologies to lower the credit assigned to renewables. This issue is not limited to renewables; system planners could also carefully assess other resources to reduce the risk that firm capacity is overstated. For example, gas plants that are not
Accelerating the journey to net zero
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