By: Bob Martin
Electricity generation in the United States will experience a rapid rate of change over the next 30 years. The electricity generation mix will continue to quickly shift to significantly more renewables. About 80% of the generating capacity in the US today comes from natural gas, nuclear and coal. The US Energy Information Agency (EIA) projects the electric generation mix will shift to 74% renewables and natural gas by 2050. These numbers may be understated given the significant investments in renewables and the continued low cost of natural gas.
The EIA, which in part of the US Department of Energy, identified in its Annual Energy Outlook 2020 (January 2020), that “Low natural gas prices and favorable costs for renewables result in natural gas and renewables as the primary sources of new generation capacity through 2050”. Their report went on to say that renewables growth will be strong … “because of continuing declines in the capital costs for solar and wind, extension of federal tax credits and higher state-level, and corporate, renewable targets.”
While the EIA projections for the demand growth for electricity is expected to be a modest 1% per year for the next 30 years, the mix of fuels to generate electricity will be dramatic. Projections show that the percentage of the generation mix from natural gas remains essentially flat (37%) over the next 30 years. Renewables will go from about 19% in 2019 to a staggering 38% of the mix by 2050, based on EIA Reference Case models.
The big decline will be in coal and nuclear power generation. Coal is projected to go from 24% in 2019 in total electricity generation mix to only 13% in 2050, while nuclear power goes from 19% in 2019 to 12% in 2050. EIA projects that most of that decline occurs by the mid-2020s. While the building of any new coal plants in the US is very unlikely, coal plants that are well operated with good air emissions control technology and are profitable will continue to operate for some extended time into the future. And while several of the oldest and least profitable nuclear units will be decommissioned, nuclear power still remains an important part of the electricity generation portfolio because of its good US safety track record and carbon free emissions. A key factor and potential game-changer for a resurgence of growth in nuclear power are the rapid developments in Small Modular Reactors (SMR) technology. This technology continues to move forward, with several companies looking to build the next generation of reactors.
The vast majority (75%) of the renewable electricity generation mix today is made up of wind (mostly onshore) and hydroelectric. That will shift to about a 79% mix of solar and wind by 2050. While all areas on renewable electricity generation will see some consistent growth through 2050, including hydroelectric, geothermal and renewable natural gas, the significant growth will be in wind and solar technologies. Solar, especially utility-scale solar, is project by EIA to go from 15% today of the renewable electricity generation mix to a staggering 48% by 2050. Onshore and offshore wind will also grow significantly during the same timeframe, but the percentage of the mix will go from about 38% today to about 33% in 2050, given the huge growth projected in solar. Offshore wind is expected to play a major role in this growth of wind energy during this period of time in the US.
While the EIA Reference Case model shows significant growth in renewables, which is driven by public policy objectives, sustainability, and carbon emissions, the other key factor speeding up or slowing down renewables is cost. Natural gas is cheap and will remain cheap given the large potential supply. EIA projects that…“natural gas-fired generation is the marginal fuel source to fulfill incremental demand and increases in the later projection years, averaging 0.8% growth per year through 2050”. Overall, renewable costs remain higher that gas-fired generation. Thus, the speed at which renewables can drive down costs, will only accelerate its uptake. One uncertainty with respect to natural gas are state, local, and corporate “bans” on natural gas as full decarbonization becomes more important as a matter of public policy.
So what does this mean for the US electricity generating industry? There are four key takeaway points:
- Traditional supply owners need to reassess their portfolio mix and the pace of change. They need to determine the extent of repositioning.
- Owners need to focus on their asset management capabilities to optimize assets capital spend and returns. This includes lifecycle management strategies for non-renewable sources of generation.
- For long-term financial success, generators need to build capabilities and alliances in the renewable space to maintain and grow revenues and margins.
- Given the different needs and demands for electricity across the country, increased attention to working relationships with Regional Transmission Organizations (RTO) and Independent System Operators (ISO) will become more important. There will be new Transmission and Distribution (T&D) capital deployment strategies needed as supply and load centers shift and network capacity needs shift accordingly.
The key element for generators will be for them to create plans, strategies, and financial models to better prepare for the dramatic changes coming in electricity generation in the US.