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The state of the American power industry is ‘strong’

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On February 5, 2020, the University Club of New York was host to the Edison Electric Institute’s (EEI) annual Wall Street Briefing. Built-in 1899, in the architectural style of Italian Renaissance Revival, the University Club is one of New York City’s most prestigious social clubs.  Formed almost as long ago, in 1933, EEI represents all the U.S. investor-owned electric companies, including 70 international electric affiliate members, and about 250 industry suppliers and related organizations as Associate companies.  EEI members provide electricity to roughly 220 million Americans in all 50 states, representing about 72% of all power customers across the country.  Strategic business intelligence and public policy expertise are just some of the services EEI provides its members.

The 2020 presentation highlighted several trends that have shaped the current healthy state of the American power industry.  The central theme of this year’s briefing was to paint a picture for an energy future that is ‘cleaner,’ ‘smarter,’ and ‘stronger.’

Source: EEI Wall Street Briefing, 2020

The charts and statistics tell the story

The power industry has made huge strides in achieving carbon emission reduction goals.  In recent years, numerous EEI member companies have announced long-term carbon reduction goals, with 15 members setting ambitious 100% zero-carbon by 2050 targets.  The presentation highlighted that member electricity producing companies have reduced their carbon dioxide (CO2) emissions by around 37% since 2005, fueling the move to cleaner power production. 

The shift from coal to natural gas, combined with substantial investment in renewables, primarily wind and solar, have driven the change.  Just ten years ago, carbon-free power, including nuclear, hydro, and other renewables accounted for about 24% of all power produced in the U.S.  Today, carbon-free power represents about 38% of the nation’s fuel mix.

Further highlighting this rapid change in the power generation fuel mix, consider that from 2009, ‘non-hydro renewables’ including wind, solar, geothermal, and biofuels moved from 3.7% of total U.S. power production to 11.5% today.  Over the decade, natural gas switched places with coal, moving from around 23.3% of electricity production in 2009, to 37.6% today.

 Sources: EEI, ABB Ability Velocity Suite, EIA | Average Annual U.S. Retail Electricity Rates 2005-2019 (real 2005 $), 2019 figures considered preliminary

Just five years ago, carbon emissions from the electric power sector were significantly higher than those produced by the transportation sector – today, CO2 emissions from power generation are about 11.5% less than emissions from cars, trucks, buses and all other modes of transportation combined that utilize fossil fuels.

Source: EEI, EIA Monthly Energy Review, December 2019, p = preliminary

When EEI closes the books for 2019, it expects that capital expenditures will reach an estimated $135.6 billion. This estimate – up from around $119.5 billion in 2018, and just ahead of the $128.1 billion forecast for 2020, along with the major strides in carbon reduction over the past decade, has never been so high. Since 2010, EEI member companies have invested nearly $1 trillion to build new infrastructure, including new generation capacity and enabling transmission and smart grid technology.  On the distribution side alone, member company investments include the installation of about 85 million smart meters during the past decade – today, more than 70% of U.S. households have a smart meter.

  Source: EEI Finance Department, company reports, S&P Global Market Intelligence (October 2019), note: total U.S. investor-owned utility company spending

All of this, while the average cost of electricity to retail customers has declined from around 8.80 c/kWh (real 2005$) in 2010, to around 8.11 c/kWh in 2019.  In fact, the cost of ‘Electricity’ to customers increased by only 61% from 1991 through 2018 in nominal dollars.  To put that in perspective, consider that ‘Health Care” increased by 174%, Gasoline (139%), Housing (93%), and even the ‘Consumer Price Index’ (CPI) by 84%, all of this during the same time frame.

Sources: EEI, U.S. Dept of Labor, Bureau of Labor Statistics, and U.S. Dept of Energy, EIA

   Other illuminating facts from the briefing  

  • More than 50% of all new power generation over the past eight years has come from wind and solar projects
  • Currently, there are more than $1.4 billion in electric vehicle charging infrastructure projects underway among investor-owned companies
  • Investor-owned utilities use 90% of existing energy storage across the U.S.
  • Along with the 37% reduction in CO2 from 2005 levels compared to 2019, EEI member companies have set goals to achieve roughly 50% by 2030 and 80% by 2050


The future looks bright for electric vehicles and power demand

Today there are about 1.5 million electric vehicles (EVs) on the road.  By 2030, the number of EVs on American roads could reach 18.7 million.  This burgeoning market bodes well for power industry growth since, according to EEI’s perspective, there will need to be about 9.6 million charging ports to support that level of growth.

  Source: EEI Wall Street Briefing, 2020

Power industry ‘strong’ and getting cleaner and smarter

The EEI briefing draws a positive picture of the electric power industry, the most capital intensive, and likely the most dynamic sector in America today, an industry supporting more than 7 million jobs and contributing about $865 billion annually to the U.S. Gross Domestic Product (GDP) – that’s 5% of all GDP.  Over the past decade, the power industry has made significant strides to modernize the grid and implement new clean and smart technologies, with that backdrop, it can only be expected to get bigger and better with time.

Kent Knutson's picture

Thank Kent for the Post!

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Matt Chester's picture
Matt Chester on Feb 12, 2020 11:24 pm GMT

This is an eye-opening graph-- what's been going on in the energy sector that has had it perform so well compared with other industries? And what opportunities would you say that affords the utility players?

Kent Knutson's picture
Kent Knutson on Feb 13, 2020 6:24 pm GMT

The supply and availablity of relatively low cost natural gas has been, and continues to be, the difference maker.

Matt Chester's picture
Matt Chester on Feb 13, 2020 10:18 pm GMT

True, the shale boom really did change the complexion of things. And the technology and availability to continue producing that gas is still there-- so I would imagine the only real threat to this would be policy that forces a shift away from gas to more expensive sources of generation?

Kent Knutson's picture
Kent Knutson on Feb 14, 2020 8:17 pm GMT

Along with the relatively low priced natural gas, the federal tax cuts have really helped utilities over the past few years.  Most of the savings has been either passed through to customers or used to fund disaster relief in areas hard hit by weather damaging storms and wildfires.  All of this helps to keep customer rates flat to even declining in inflation adjusted terms.   Electricity is truely one of the best 'deals' around.

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