BLOG — Aug 26, 2026
Natural Gas Gains Ground: Key Shifts in the US Power Market Competition
A dynamic shift is underway in the U.S. power generation landscape. While the long-term trend favors decarbonization, a confluence of evolving demand forecasts, rising capital costs for renewables, and a renewed focus on grid reliability is creating a significant opening for natural gas. Analysis from the S&P Global Q2 2026 Market Indicative Power Forecast reveals that natural gas is poised to capture a larger-than-expected share of the market, challenging the recent dominance of battery storage and solar in capacity expansion plans.
This analysis, detailed in our recent webinar, "US Power Forecast Q2’26 - Natural Gas Gains Ground in the Competition for Market Share," unpacks the complex interplay of market forces, policy changes, and technology economics reshaping the grid. The findings indicate a more nuanced energy transition, where incumbent technologies like combined-cycle gas turbines (CCGTs) are finding new relevance alongside continued, albeit more challenging, growth in renewables.
Key Highlights
- Shifting Market Fundamentals: Downward revisions in electricity demand forecasts in key states, coupled with rising capital expenditures across all generation asset classes, are altering the competitive landscape and narrowing the cost gap between natural gas and renewables.
- Gas Generation Economics: Lower domestic natural gas prices are providing a tailwind for gas-fired generation. Our forecast shows a 51 GW increase in CCGT capacity by 2045, largely displacing previously projected battery energy storage systems (BESS) in markets like ERCOT, MISO, and SPP.
- The Reliability Question: The capacity value of battery storage, measured by Effective Load-Carrying Capability (ELCC), is projected to decline significantly as market penetration increases. This makes longer-duration storage and firm, dispatchable resources like gas turbines more critical for ensuring grid reliability.
- Interconnection Queues Signal a Change: While renewables and storage still dominate U.S. interconnection queues in aggregate, natural gas has seen the largest percentage increase in proposed capacity, nearly tripling since 2024. This surge reflects a growing focus on dispatchable generation to meet rising load from data centers and industry.
- Regional Dynamics Diverge: The growth of natural gas is not uniform. It is most pronounced in the non-ISO Southeast, where it now leads all technologies in the queue, and in ERCOT, where planned gas capacity has quadrupled in two years to meet significant load growth.
Five Key Takeaways from the Q2 2026 Forecast
1. Why are market fundamentals tilting back toward natural gas?
Several structural changes are creating a more favorable environment for natural gas generation. First, forecasts for peak electricity demand have been revised downward in key regions pursuing aggressive electrification, including California (down 3.5 GW by 2030) and ISO-NE (down 3.2 GW by 2030), reducing the immediate market size for new renewable builds. Second, updated rules for the Regional Greenhouse Gas Initiative (RGGI) are expected to increase carbon allowance prices by 80% over previous forecasts, equivalent to adding $1.15 per MMBtu to the cost of natural gas in the East. While this benefits renewables, it is counteracted by a third factor: a broad-based increase in capital expenditures (capex) that now impacts BESS, solar, and wind, eroding their cost advantage. This narrowing capex gap, combined with lower capacity factors for renewables, gives dispatchable gas generation a stronger economic footing.
2. How is gas generation displacing other technologies in forecasts?
The combination of narrowing capex differences and lower domestic natural gas prices is directly impacting generation buildout forecasts. Our Q2 2026 outlook projects a net increase of 51 GW of combined-cycle gas turbine (CCGT) capacity by 2045 compared to the previous quarter's forecast. This growth is centered in markets with strong demand and access to inexpensive gas, such as ERCOT and MISO. This new gas capacity comes at the expense of other technologies; the forecast for battery storage capacity has been reduced by 37 GW in the same period. While solar deployment remains resilient through the 2030s, the improved economics for CCGTs are making them the preferred option for firm, dispatchable power in many regions.
3. How does battery storage reliability change with increased deployment?
As grids rely more heavily on intermittent renewables, the role of battery storage in providing reliable capacity becomes critical. However, its effectiveness, measured by ELCC, diminishes with scale. Our analysis of Virginia's storage targets shows that if the 16 GW goal by 2045 is met entirely with 4-hour duration BESS, the marginal ELCC would fall to just 16%, providing only 6.5 GW of reliable capacity. In contrast, a portfolio including 6- and 8-hour duration batteries could maintain an average ELCC of 82%, providing 13 GW of reliable capacity. This demonstrates that as shorter-duration BESS saturates the market, its value for reliability declines, increasing the relative cost-effectiveness and necessity of longer-duration storage or alternative firm resources.
4. What do interconnection queues reveal about the rise of natural gas?
Interconnection queues provide a forward-looking view of developer intent. While still dominated by 1,700 GW of proposed hybrid, solar, and storage projects, the most significant recent trend is the growth of natural gas. Since 2024, the amount of natural gas capacity in U.S. queues has nearly tripled, adding approximately 100 GW in the last year alone. Natural gas now accounts for 14% of all proposed capacity, up from just 3% in 2024. This rapid increase is a direct response to soaring electricity demand projections, driven by the proliferation of AI data centers, and a renewed focus by grid operators on securing dispatchable resources to ensure reliability.
5. Where is the growth in natural gas generation concentrated?
The resurgence of natural gas is highly regional. The non-ISO Southeast has become the epicenter of this trend, where natural gas is now the leading technology in the interconnection queue with 87 GW of proposed capacity—making up 46% of the region's total queue. This is driven by expectations of massive load growth from data centers. ERCOT has also seen its planned natural gas capacity quadruple in just two years, from 12 GW to 49 GW, to serve its booming industrial and data center demand. Even in the renewable-heavy non-ISO West, planned gas capacity has quadrupled in the last year. This geographic concentration highlights that gas is being deployed strategically in regions facing the most acute reliability challenges and load growth.
How S&P Capital IQ Pro Supports Analysis of the US Power Market
Navigating the evolving U.S. power market requires access to granular data and forward-looking analysis. S&P Capital IQ Pro – Energy service provides comprehensive power price forecasts, asset-level data, and market intelligence to help stakeholders understand the competitive dynamics among natural gas, renewables, and storage. Our analysis of interconnection queues, capacity accreditation, and policy impacts enables clients to identify risks, evaluate investment opportunities, and build robust strategies in a rapidly changing energy landscape.
What the data shows about the US power market
What is causing the renewed interest in natural gas for power generation?
The renewed interest is driven by a combination of factors, including lower domestic gas prices, rising capital costs for renewables and storage, and a critical need for dispatchable generation to ensure grid reliability amid soaring demand from data centers.
Is natural gas capacity growing everywhere in the US?
No, the growth is highly regional. It is most concentrated in the non-ISO Southeast, ERCOT (Texas), and the non-ISO West, which are regions experiencing or anticipating significant electricity demand growth and facing potential reliability challenges.
Are renewables and battery storage still growing?
Yes, renewables and battery storage still dominate interconnection queues in aggregate and are forecast to see significant capacity additions. However, the pace of growth is being challenged by higher costs, supply chain constraints, and the diminishing reliability value (ELCC) of short-duration storage as it becomes more widespread.
What is ELCC and why is it important for battery storage?
Effective Load-Carrying Capability (ELCC) measures the actual contribution of a resource to meeting peak electricity demand. For battery storage, ELCC can decline significantly as more capacity is added to the grid, meaning each new battery provides less incremental reliability value, impacting its overall cost-effectiveness.
How have interconnection queues changed recently?
While still large, interconnection queues for renewables have seen some contraction due to market reforms aimed at reducing speculative projects. The most significant change is the rapid growth in proposed natural gas capacity, which has nearly tripled since 2024, signaling a market shift toward ensuring resource adequacy.
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