Renewable power plants are reducing US gas demand

18 January 2022

In its January ‘Short-term Energy Outlook’ the US Energy Information Administration forecast that rising electricity generation capacity from renewable resources such as solar and wind will reduce generation from fossil fuel-fired power plants over the next two years. The forecast share of generation for US non-hydropower renewable sources, including solar and wind, is an increase from 13% in 2021 to 17% in 2023. EIA forecasts that the share of generation from natural gas will fall from 37% in 2021 to 34% by 2023 and the coal share will decline from 23% to 22%. 

The rise in renewables generation in the USA has had a very significant impact. The amount of solar power capacity operated by the US power sector at the end of 2021 was 20 times the level at the end of 2011, and the country’s wind power capacity is now more than twice what it was 10 years ago. 

Another significant shift in the generation mix has been a steady decline in the use of coal-fired power plants since their peak output in 2007 and the increasing use of natural gas, primarily as a result of sustained low natural gas prices. However, that trend reversed in 2021 when the cost of natural gas delivered to US electric generators averaged $4.88 per million British thermal units, more than double the average cost in 2020. As a result, the share of generation from natural gas declined from 39% in 2020 to 37% last year, while the share of generation from coal rose for the first time since 2014 to average 23%. 

In its current STEO, EIA forecasts that most of the growth in US electricity generation in 2022 and 2023 will come from new renewable energy sources. EIA estimates show that the electric power sector included 63 GW of existing solar capacity operating at the end of 2021, and it forecasts that solar capacity will grow by about 21 GW in 2022 and by 25 GW in 2023. 7 GW of wind generating capacity I expected to be added in 2022 and another 4 GW in 2023. Operating wind capacity totalled 135 GW at the end of 2021. 

EIA’s growth forecast for renewables generation over the next two years points to a reduced need for fossil-fuelled generation. Although it expects natural gas prices for electric generators to decline, the operating costs of renewable generators will continue to be generally lower than natural gas-fired units; regions of the country with the largest increases in renewable capacity, such as Texas and the Midwest/Central regions, will experience the largest reductions in natural gas generation. 

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