May 19, 2017 Read More →

Market Trends Driving U.S. Electricity-Generation Shift

Utility Dive:

Analysts told us this would happen — the traditional electric utility model would be upended, and utilities would need to adjust their business models to operate in a new energy future. Now, with plummeting prices for renewables and energy storage, the finalization of the nation’s first carbon regulations, and the proliferation of distributed energy resources, changes are taking hold faster than many expected. The electric sector is no longer simply anticipating a revolution — depending on where you are, it is embroiled in one today.

To help guide you through the uncertain waters of the industry, we have identified ten trendlines that are shaping the future of the power sector. The selection isn’t meant to be exhaustive, nor are we trying to rank one trend over another, but we hope the following list shows where we see the industry going.

10. Coal power in decline

For many power companies and politicians, the single most noticeable trend in the utility industry is the steady retirement of coal-fired power plants.

About 25,000 MW of coal capacity has been retired since 2009, according to SNL Energy, and there are already formal plans to retire about the same amount of coal capacity by 2022. Of those retired plants, most were nudged into unprofitability by historically low natural gas prices and the EPA’s Mercury and Air Toxics Standards (MATS), which put strict limits on emissions of mercury, lead, and other coal plant pollutants. Environmental activism has also played a significant role, with lawyers from the Sierra Club and other green groups teaming up with business interests across the nation to push for renewables and other clean resources instead of new coal.

25 GW of coal capacity has retired in the US since 2009, and another 25 GW of retirements are planned by 2022.

All that means the U.S. coal burn is now lower than it has been since the early 1980s, and the situation for fossil generators isn’t improving. The EPA’s Clean Power Plan, finalized in August, is expected to further downsize the nation’s coal power fleet in the coming decades. In an analysis of the draft plan earlier this year, the EIA predicted the federal carbon regulations would contribute to 90 GW of coal retirements by 2030, along with other factors such as renewables proliferation, gas prices, and other EPA rules. [Update: We have replaced the EIA chart originally included in this post with the below chart from the Sierra Club including all coal retirements completed or proposed by Nov. 1, 2015.]

While the outlook for coal power certainly isn’t bright, it’s not necessarily doomsday: The EPA still expects the resource to be a major fuel for electricity generation in 2030 and beyond, and the Department of Energy continues to push “clean coal” technology, despite well-documented setbacks at major U.S. plants.

9. Natural gas is growing fast

In the near-term, coal’s loss appears to be natural gas’ gain. As market conditions and regulations push older coal generators into retirement, utilities looking to add reliable capacity quickly are increasingly looking to gas plants.

Wind and solar, while growing quickly, still represent a relatively small slice of the U.S. fuel mix and only generate electricity under certain weather conditions. For utilities looking to ease integration of these resources and add baseload capacity, a combined cycle gas plant offers a relatively quick and cheap solution that meets EPA rules on carbon and other pollutants. NERC estimates that the U.S. would need to add about 150 GW of natural gas generation by 2030 to comply with the EPA’s proposed Clean Power Plan.

NERC’s estimates based on the draft CPP see gas generation skyrocketing in the U.S. Credit: NERC study of potential Clean Power Plan reliability impacts

Those estimates — and other, similarly bullish ones from EIA — for gas capacity additions have yet to be updated based on the finalized Clean Power Plan. Although the EPA put less emphasis on gas as a bridge fuel in its final rule, analysts still expect it to grow steadily over the coming decade.

But while the future looks bright for now, the trouble for gas may come during the later years of Clean Power Plan compliance. EIA estimates show the trend for gas additions switching to retirements between 2020 and 2030 as prices for renewable energy drop further. If natural gas prices rise from their historic lows, that switch could come sooner rather than later.

8. Renewables reaching grid parity

For years, the primary argument against renewable energy was that it isn’t cost effective. Today, that line of reasoning is becoming increasingly obsolete. In many regions, wind and solar — especially at utility scale — are reaching grid parity and often pricing out more traditional generation resources.

For renewable energy observers, this trend isn’t new to 2015. Around this time last year, the financial firm Lazard released its annual study of global energy costs from a variety of fuel sources. It found that for utility-scale projects, both wind and solar are cost-competitive with traditional generation technologies without subsidies, and face fewer regulatory hurdles and market uncertainties than new nuclear or “clean coal” plants.

Those estimates take prices from renewable energy projects around the world, but there are more localized indicators as well. In July, NV Energy signed a PPA for what many observers believe is the cheapest electricity in America — a $0.0387/kWh deal with a utility-scale solar facility built by First Solar. That record came not even a week after Austin Energy signed a PPA for 1.2 GW of solar under 4 cents/kWh, which was labeled the “cheapest solar ever” at the time.

A recent GTM Research report found that 40% of the more than 16 GW of utility-scale solar currently planned for construction was chosen “primarily due to solar’s economic competitiveness with fossil-fuel alternatives.” And earlier this year, Deutsche Bank released an analysis that found solar energy will reach grid parity in at least 36 states in 2016.

Wind energy is also making waves in regional markets. Analysts credit cheap wind, along with natural gas, for pushing a host of older nuclear and coal plants to unprofitable status in deregulated markets. That dynamic has led utilities like Exelon, AEP, and, most recently, FirstEnergy, to solicit ratepayer support for their older coal and nuclear plants, arguing they are essential to reliability.

As wind turbines get taller and blades get longer, analysts expect the price for the resource to continue to drop, opening up previously undeveloped areas like the American Southeast to wind growth. Due to those declines, the Department of Energy estimates that wind could be the nation’s single greatest source of energy by 2050, comprising up to 35% of the fuel mix.

10 trends transforming the electric power sector

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