Search Copying and distributing are prohibited without permission of the publisher
Email a friend
  • To include more than one recipient, please separate each email address with a semi-colon ';', to a maximum of 5

  • By submitting this article to a friend we reserve the right to contact them regarding Fastmarkets AMM subscriptions. Please ensure you have their consent before giving us their details.

Power, politics, carbon and the US energy mix


Amid the growing push for green energy, it is not surprising that the transition of the US power generation mix towards greater use of cleaner energy sources, such as wind and solar power and natural gas, has been accelerating in recent years.
“Energy technologies and businesses have experienced extraordinary changes over a short period of time,” Sasha Mackler, director of the Bipartisan Policy Center’s energy project, said during that group’s recent joint annual energy outlook (AEO) webinar with the US Energy Information Administration (EIA). That discussed projected changes in the US energy market through 2050.

Mackler pointed out that while some of the changes have been structural in nature, including the fact that the cost of renewable energy technologies has been declining sharply over recent years, it has also been driven by several external forces, including the Covid-19 pandemic, which had a negative impact upon the US economy and its energy demand.
Another big impact comes from governmental policies, which he said is why he believes that President Joseph Biden’s aggressive climate change agenda promises to alter the energy sector in fundamental ways in coming years.

Despite this push for green energy, John Villali, research director for IDC Energy Insights, pointed out that currently the US still uses many fossil-fuel power-generation sources. According to the EIA’s recent short-term energy outlook, last year natural gas accounted for 39% of the domestic power-generation mix, with coal accounting for about 20% of the total.
In what is something of a departure from the trend in recent years, coal’s share of the generation mix is expected to inch up slightly from 19% in 2020 to 22% in 2021 and 24% in 2022, while the natural gas share is expected to ease to 36% this year and 34% next year. According to Betsy Monseu, chief executive officer of the American Coal Council, that is largely connected to forecasts for higher natural gas prices at a time when coal prices are expected to remain relatively stable. The EIA, however, is projecting that coal’s share of the generation mix will decline to about 11% by 2050.

Meanwhile, John Hensley, vice president of research and analytics for the American Clean Power Association (ACPA), said that renewable-energy power sources – the largest percentage of which is wind and solar power, but also includes hydroelectric, biomass and geothermal power – has been steadily becoming a larger part of the US electricity generation mix, with approximately a 20% share.

Wind power accounts for about 8-9% of the total, solar has about a 2-3% share, and hydropower’s current share is about 8%.
The EIA is projecting that the non-hydro share of the mix will continue to edge upwards from 12% in 2020 to 16% in 2022, while hydropower will be more steady, inching down from 8% to 7% of the mix over the same timeframe.
With renewable assets, particularly wind and solar, becoming increasingly lower cost and more efficient, Hensley said they have become the top choice for new power generation. Not only, according to the EIA, is 80% of the new power generating capacity expected to come online in 2021 to be wind, solar and battery storage, but ACPA has a target for renewables to make up 50% of the generation mix by 2030.

Meeting such a target might not be all that easy, Villali said, predicting that it would likely be a slow creep up given that the power generation and transmission systems necessary are not there yet to make that happen. He added that baseload energy units (such as natural gas, coal and nuclear power) will continue to be needed to fill the gap, given the intermittent nature of renewables. He noted that while some have also been talking about the possibility of renewables eventually being 100% of the generation mix, “I don’t see that happening in the US within our lifetime. In the meantime, we have to also rely on fossil fuels.”

Nuclear power

Another major component of the US power generation mix, although one that is expected to have a smaller share going forward due to expected plant retirements, is nuclear power. According to the EIA, nuclear power accounted for 21% of all power generation in 2020, but that share is expected to slip to 20% this year and 19% in 2022, despite the fact that nuclear power production does not generate greenhouse gas (GHG) emissions.
Sheila Slocum Hollis, acting executive director of the United States Energy Association (USEA), noted that existing US nuclear power plants are 40 years old, or older, and will eventually need to be retired. “Unless there is a new nuclear program, which hasn’t come to fruition because of the cost and regulatory program, which hasn’t come to fruition because of the cost and regulatory objections, nuclear power is relying on an old fleet,” she said. “While some plants have gotten license extensions of about 20 years, they might come offline sooner because of objections and concerns.”

According to the EIA, at 5.1 GW, nuclear plant retirements represent half of all expected 2021 US power plant retirements and 5% of the currently operating US nuclear generating capacity.

Competition and symbiosis

During the AEO webinar, Angelina LaRose, EIA’s assistant administrator for energy analysis, pointed out that there is both robust competition and a symbiotic relationship between renewable energy and natural gas, both of which have benefited from lower costs over the past decade. “There are reasons to believe that trend will continue,” she said, adding, “What is less certain in this competitive market is how much other power generation sources will struggle to maintain their market share.”
LaRose said that in EIA’s reference case it is expected that, while overall net US electricity generation will increase by about 33% between 2020 and 2050, over that timeframe generation capacity is expected to grow by about two-thirds, which is a disparity that is largely due to the intermittent nature of wind and solar generation, creating a need for other resources, including energy storage, natural gas and coal.

She said that the EIA is projecting cumulative US electricity generation capacity additions and retirements will see an overall increase of between 50% and 84% by 2050, depending upon the case playing out, with all that growth coming from solar, wind and natural gas. Based on the EIA’s reference case, renewable energy is expected to account for about 60% of the about 1,000 GW of cumulative capacity additions projected from 2020 through 2050. That, LaRose said, is mainly due to declines in their capital costs, although increasing renewable portfolio standard target and tax credits will also contribute.

Several drivers

The demand for wind and solar is being driven by several different factors. For example, Hollis pointed out that there is growing demand by investors for companies to go greener. “They are requiring that companies have a big stake in getting on the climate bus and to actively work to accelerate that transition.”
At the same time there has just been a big shift in consumer preference toward clean energy – both by homeowners and businesses – especially as the cost of renewable technologies continue to decline, ACPA’s Hensley noted.

“Clearly the production tax credit (PTC) for wind power and the investment tax credit (ITC) for solar – the two financial mechanisms available for renewable energy – has helped to bring these technologies to market faster than would otherwise have been the case,” Hensley added, given that they make the projects more financeable.
The PTC is based on the wind power being produced, while the ITC is an incentive for developers to invest in solar projects. But while the two incentives were huge drivers of demand over the past five-plus years, IDC’s Villali admitted that their future was made more uncertain under the Trump administration with plans for them to be phased out over the next few years. Now, given the stated clean-energy goals of the Biden administration, he said he believes that those incentives, along with subsidies for electric vehicles, are likely to be extended.

Hensley noted that, as part of the December US federal government funding bill, the 60% wind PTC had been extended through the end of 2021 and the solar ITC has been extended through 2023, although at a phased-down level, going from 26% this year to 22% in 2022, and eventually down to 10%. The bill also included a new 30% ITC for offshore wind projects beginning construction prior to 2026, as well as a one-year PTC extension for other renewable energy projects, including hydropower, marine kinetic, biomass, geothermal, landfill-gas-to-power and trash-to-power.
Even though the expected phasing out of wind tax credits could result in at least a temporary higher project cost for consumers, “We will still see renewables deployed, although probably not at the same rate if those tax credits were to stay in place and continue to incentivize the technologies over a much longer timeframe,” Hensley said.

Hydro and solar power

There have also been increases hydropower in the US, but given the large capital projects involved, it has just been growing moderately. Hensley also pointed out that there is a physical limit as to how much hydropower you can on the system and the type of resources that are required. “At this point the US has really exhausted the majority of its hydro resources,” he said. There will be improvements to the technology and replacements of existing turbines, he added, swapping them out with more efficient generators. Therefore, there will be some incremental build-up of hydropower, but it certainly will not be on the same scale as for wind and solar or for energy storage, which is also a big part of the equation, given the intermittent nature of the renewables.
The EIA says that it expects the capacity of utility-scale battery storage systems to more than quadruple this year with 4.3 GW of battery power additions slated to come online by the end of 2021. This comes as the world’s largest solar-powered battery (409 MW) is under construction at the Manatee Solar Energy Center in Florida and is scheduled to be operational late this year. “There is also a huge amount of research on new battery technologies with all the national laboratories are working on it,” USEA’s Hollis pointed out.

Natural gas

Meanwhile, natural gas continues to be the fuel of choice for fossil fuel capacity additions, EIA’s LaRose declared. “Accounting for nearly 40% percent of the cumulative US energy generation capacity additions, these natural-gas-fired power plant additions are equally split between combined-cycle and combustion turbines, both of which provide energy and provide a balance for the intermittent output from wind and solar generation.”

Hollis calls natural gas the best choice for filling the gap when the wind does not blow or the sun does not shine, especially given that the fracking technology has opened up a massive amount of natural gas supply and that there is more or less enough pipeline infrastructure in place to deliver that gas to the power plants. “New pipelines here and there are needed to maximize the utilization of natural gas, but that varies state to state and region to region and whether it is on federal land or state land and what the impact is on indigenous people and on local economies,” she noted.
While there has already been a change in the kinds of natural gas plants coming online in the US, IDC’s Villali said that with the new mix of renewables coming in it is possible that there will be new forms of natural gas units, including quick-start or more peaking units, in order to help utilities and the power grid meet energy demand at peak times, such as the hottest days of the summer, by contrast with the current base-load units that take at least five or six hours, and sometimes even a full day, to ramp up.

The natural gas share of the energy generation mix will depend upon how its price trends, EIA’s LaRose said, pointing out that in the case of high prices, the natural gas share of the generation mix will fall, with the share of renewables, and possibly coal, trending higher. “This is in contrast to a high oil and natural gas supply case, which would result in lower natural gas prices, therefore a much higher natural gas generation share compared with renewables.” She, however, acknowledged that these dynamics could be influenced by potential changes in governmental policy, which the EIA does not take into account in its AEO projections.
There are plans for 6.6 GW of new natural gas capacity additions in 2021, of which 3.9 GW is for combined-cycle generators and 2.6 GW combustion-turbine generators, and with 253 MW of natural gas-fired capacity scheduled to retire this year.

Coal and carbon capture

“Given that it isn’t the cleanest resource, there has been a scaling back of US coal-fired generation and capacity starting under the Obama administration,” Villali said, pointing out that even under the Trump administration no new coal plants were built and that going forward coal plant owners will do what they can to maintain their share as long as they can.

ACA’s Monseu pointed out that the coal industry has been working on carbon capture technologies for many years and is hopeful that there will be more funding going forward for such initiatives. “We also continue to remind people how important a diversified electricity generation mix is and how important coal is to that mix,” she said, noting that, for example, coal plants have inventory on the ground that could be dispatched anytime, which she said is not the case for natural gas-fired plants.
Nevertheless, she acknowledged that over 40% of the coal fleet that existed in 2010 has already been retired, with further retirements planned. But given the substantial number of coal-fired plants that have already been retired, the EIA projects that the rate of further retirements is likely to slow, largely coming from older units. This year, the EIA said, 2.7 GW of coal-fired capacity – about 1% of the existing fleet – is scheduled to retire.

LaRose said that the retirement rate in coming years will depend upon what investments coal plants make to increase their efficiency by 2025 to comply with US Environmental Protection Agency’s Affordable Clean Energy rule.
“Over the long term we will continue to be on a path of cleaner energy,” Villali said, particularly with the US rejoining the Paris Climate Accord and expectations that under the Biden administration there will be a push for things to be greener and cleaner. He expects those changes to happen gradually.

USEA’s Hollis agreed, stating that even though renewable energy sources are in a “golden wonderful spot,” everyone is going to be in the energy generation mix for a while given that natural gas is not going to go away any time soon and there continues to be niches for coal and nuclear power. “There will continue to be a lot of players involved in the generation, transmission and distribution of energy,” she said. To read this article and the entire issue, please click here

Have your say
  • All comments are subject to editorial review.
    All fields are compulsory.