Gas–based generation in the USA in decline

25 May 2021

In the first four months of 2021, natural gas-fired generation in the USA’s ‘Lower 48’ states averaged 3394 GWh per day, a decrease of nearly 7% from the same period in 2020, according to data from the Energy Information Administration’s Hourly Electric Grid Monitor. The decline is the result of higher natural gas prices and increased competition from renewables, and it is the first year-over-year decline since 2017. Overall, US electricity generation during the period increased 6.6% compared with 2020 because of colder winter weather. 

Natural gas-fired generation has been facing increased competition from renewable generation in the United States because of recent record-high capacity additions to wind and solar power plants. 

Between May 2020 and February 2021 (the most recent month for which EIA has data) 22.5 GW of combined net wind and solar electric generating capacity additions came online in the United States, a 15% increase. EIA expects an additional 28.7 GW of wind and solar capacity to enter service during the remainder of 2021, based on its Preliminary Monthly Electric Generator Inventory. In contrast, between May 2020 and February 2021, 4.8 GW of U.S. natural gas capacity came online, a 1% increase. EIA expects an additional 3.8 GW of natural gas capacity to come online during the remainder of 2021. 

US natural gas prices have risen since April 2020 because of lower natural gas production and higher winter heating demand compared with the previous winter heating season that ran from October 2020 to March 2021. The US benchmark natural gas price at the Henry Hub averaged $2.83 per MMBtu from January through April 2021, despite a cold snap and record-high prices in mid-February. Higher US natural gas prices have hit the competitiveness of natural gas-fired generation compared with coal-fired generation, prompting natural gas-to-coal fuel switching. Coal-fired generation has increased nearly 40% in the United States during the first four months of 2021 compared with the same period in 2020 and accounts for 23% of total generation, according to data from EIA’s recent Hourly Electric Grid Monitor. 

Declines in natural gas-fired generation are expected to continue through to 2022. In May’s Short-Term Energy Outlook, EIA forecast that natural gas-fired generation will decline 9.1% in 2021 and a further 0.7% in 2022.

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