EIA outlook sees renewables gaining faster, eyes lower cost case

Renewable energy is projected to crowd out coal-fired and nuclear generation and even overtake natural gas as the dominant fuel for power generation by 2045, under the main reference case considered by the Energy Information Administration in its 2020 Annual Energy Outlook released Wednesday.

A separate case assuming lower costs for renewables expects faster acceleration of renewables use, allowing gas-fired generation to level off starting in the 2020s.

Pointing to declining capital costs and more aggressive renewable portfolio standard targets set by some states, the outlook expects renewable generation to grow faster than overall electricity demand.

Slow load growth, with electricity demand projected to remain close to historical lows through 2050, "means the power markets do not need to add large amounts of new generating capacity," EIA Administrator Linda Capuano said while presenting the outlook.

The reference case projects the US will add 153 GW of new wind and solar capacity between 2020 and 2025, while 110 GW worth of coal and nuclear plants retire. Coal's share of the generation mix is seen tumbling from 24% in 2019 to 13% in 2050, and nuclear's share, to 12% in 2050 from its current 19%.

Though gas-fired combined-cycle generation capacity is expected to be "added steadily throughout the projection period to meet rising demand," the reference case shows gas use for electricity dipping slightly to 36% of the power mix in 2050, compared with 37% in 2019. A year earlier, the outlook saw gas growing from 34% of the mix in 2018 to 39% by 2050.

RENEWABLES MARKET SHARE

EIA this year raised projections of renewable generation market share to 38% in 2050, compared with 31% projected in 2019. Renewables made up 19% of the generation mix in 2019.

Continued investment and experience gained with more builds are seen driving the costs of renewables down to make them the fastest-growing source of electricity in the US, and competitive without federal and state policies.

"How long these high cost reduction rates can be sustained is highly uncertain," EIA's outlook said, adding that "the future generation mix is sensitive to the price of natural gas and growth in electricity demand."

The agency's reference case assumes cost reductions for renewables will gradually taper off. But EIA's "low renewables cost" case assumes renewables achieve overnight capital costs in 2050 that are 40% lower than in the reference case.

Under that scenario, renewable generation inches ahead of gas in 2034 and continues an upward trajectory toward providing nearly 3 trillion kWh of electricity by 2050. Gas-fired generation, in that case, remains flat, supplying between 1.5 trillion and 1.6 trillion kWh throughout the projection period.

GAS PRODUCTION, EXPORTS

Overall, the outlook projects US energy consumption will grow more slowly than GDP, while continued historic highs in production allow the US to export oil and gas and remain a net energy exporter.

Across all cases, the outlook projects gas production will exceed consumption, enabling increased exports even though production growth slows to less than 1% a year in the 2020s in the reference case.

Dry gas production grows 1.9% a year from 2020 to 2025 in the reference case, amid continued development of tight oil and shale resources, but is well below the 5.1% a year average seen from 2015 to 2020, the outlook said.

Gas consumption slows after reaching 31.9 Tcf in 2020 and stays flat through 2030, then rises 1% a year with higher power sector and industrial sector use; the industrials category, which wraps in LNG feedgas, is the biggest consumer after 2021.

LNG exports are seen growing to 5.8 Tcf in 2030, as more US terminals come online, but then leveling off as US volumes become less competitive. In a high oil price case LNG exports are twice those in the reference case around 2040, while a low oil and gas supply case could see US export capacity idled toward 2050, Capuano said.

Annual pipeline exports to Mexico are projected to increase to about 2.9 Tcf in 2030, from 1.85 Tcf in 2019, and then roughly hold steady through 2050 as Mexico increases domestic production.

Gas prices in the reference case stay below $4/MMBtu through 2050, with abundant lower cost resources, mostly in Permian Basin tight oil plays.

US energy-related CO2 emissions in the reference case are expected to fall until the mid-2020s in the reference case, helped by fuel economy standards and rising renewables, and then resume modest growth in the 30s, but remain 4% below the 2019 level in 2050.