American power industry in transition
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- Jun 22, 2020 12:00 pm GMT
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Albert Einstein once stated, “I never think about the future, it comes fast enough”, and Abraham Lincoln, among others, is credited with saying, “The most reliable way to predict the future is to create it.” The latter describes how innovative movers and shakers, from the government to industry and across all facets of the electric power industry, have driven transition that no one could have predicted. Like almost everywhere in the world, the American power industry has undergone a tremendous transformation over the past decade and a half; changes that even the most skilled forecasters were unable to foresee.
Fifteen years ago, most power industry planners considered renewable energy, particularly wind and solar, barely on their radar, and coal was still expected to be the largest electric fuel twenty years into the future. The two most unpredicted trends were how quickly and methodically coal would decline, and how rapidly wind and solar power would grow.
What no one saw coming was the rapid fall of coal as part of the power generation fuel mix. In 2003, coal-fueled 1,970 TWh (51%), with most forecasts expecting 2,500 TWh by 2020 and 3,000 TWh by 2025. But in 2019, coal only generated 966 TWh, much less than forecasts predicted. This was driven by an aging fleet, unfavorable economics, and burgeoning clean-energy policy, among other factors.
U.S. electricity generation by fuel source, TWh
Renewables may have been the most misunderstood energy resources. By 2005, the levelized cost of energy (LCOE) of various types of renewable generation had already shown a decline, and most economists projected further declining cost curves as more and more capacity is built. Wind development was about to take off. In 2003, installed wind capacity across the U.S. totaled 5.3 GW (11.0 TWh), with most forecasts suggesting little growth (10 to 15 GW) by 2025 – but by the end of 2019, operating wind capacity was already 106.3 GW, producing over 300 TWh of electricity supply – about 10X the 2005 projections.
Solar was barely on the radar in 2005. Utility-scale solar represented about 0.7 TWh in 2003, with a forecast to reach a paltry 5 to 7 TWh by 2025. In 2019, power generation by utility-scale solar farms topped 72.2 TWh, with an additional 35.0 TWh produced at small-scale, primarily rooftop, solar installations.
Declining cost curves drive move to renewables
One of the key drivers behind the growth in wind and solar technology has been their constantly declining cost curves. In 2009, according to annual LCOE analysis by financial advisory and asset management firm Lazard, the estimated average levelized cost of onshore wind energy was about $135/MWh. By 2019, that estimate was only $41/MWh, while utility-scale solar PV dropped considerably further, from around $359/MWh in 2009 to 40/MWh by the end of 2019.
Natural gas is a big winner
Along with the huge decline in coal power and gains in wind and solar over the years, most forecasts supported significant growth in natural gas as a power generation resource – from around 630 TWh (17%) in 2003 to roughly 1,300 to 1,400 TWh in 2025 – but already by 2019, natural gas had exceeded that outlook by generating 1,582 TWh – providing about 38.4% of all power generation across the country.
Additionally, back in 2005, utility planners were beginning to grapple with the rising number of state-level renewable portfolio standards (RPSs), but with even those mandates, the perceived high forecast cost of renewable project development made natural gas and coal attractive future utility fuels, even though delivered natural gas prices ranged between $4 and $5/mmBtu. Little did forecasters know that the price of natural gas would skyrocket to well above $10/mmBtu just prior to the advent of the ‘Great Recession’ in late 2006, and then again during the heart of the economic downturn in 2008. But during the post-recession period, driven by an abundant and cheap shale gas supply, prices fell rapidly in late 2009, and then surreptitiously over the next decade, to below $2/mmBtu today, with forwards 2 to 3 years out showing little upward pressure.
One common prediction from 2005 was for natural gas to surpass nuclear power in the fuel mix hierarchy by around 2010 – but driven by the emerging shale gas revolution at the time, that milestone was achieved within one year in 2006, and natural gas never looked back. The next big milestone will be when renewable electricity production surpasses nuclear power – something that seems likely to happen very soon.
The wind and solar capacity figures are expected to continue to grow as the large portfolio of under-construction, utility-scale solar, and wind capacity become operational during the next few years. According to data compiled by ABB’s Velocity Suite Research team, there are 19.8 GW of wind and 11.8 GW of utility-scale solar currently under construction with more than 81% expected online by the end of next year.
Things have changed considerably over the past decade and a half. Consider what economists and power industry prognosticators predicted for today back in 2005. Driven by a myriad of events including the shale-gas revolution, government, utility, and corporate clean energy policy and goals, and the rapidly declining cost curves for wind, solar, and even natural gas power, today’s industry looks quite different. Today, operating wind capacity in the United States is 109.8 GW while utility-scale solar tops the scale at a hefty 46.2 GW. So next time we scrutinize over the future, remember that along the path to a clean-power future, innovation, and new technology rules, and like Abraham Lincoln said more than a century and a half ago, “The most reliable way to predict the future is to create it.”