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Morgan Stanley forecasts 55% renewables, no coal in US energy mix by 2035

Morgan Stanley Research forecast a U.S. power supply consisting of 55% renewables and 0% coal by 2035, but increased natural gas prices will drive a bump in coal generation during 2021.

According to Devin McDermott, chief commodity strategist for global gas, LNG and U.S. Power at Morgan Stanley Research, average natural gas prices will increase 48% year over year in 2021 to $3/MMBtu, pushing up capacity factors for coal plants and the sector's carbon emissions. But the decline for coal will resume afterward, from 20% in 2020 to 3% in 2030 and 0% in 2033.

Updated forecasts by Morgan Stanley show renewable generation hitting 55% of the U.S. power mix by 2035, with baseload resources consisting primarily of gas at 16%, nuclear at 17% and hydro at 8% accounting for the rest, according to a Feb. 1 report.

The 55% renewables calculation is down from Morgan Stanley's previous estimate of 60%, driven by "lower capacity factors used for onshore wind as installations expand into areas with lower wind speeds in order to displace fossil fuels." The updated forecasts are based on the U.S. Energy Information Administration's latest short-term energy outlook as well as renewable energy asset deployment schedules, the report noted.

Morgan Stanley remains "bullish on renewables installations through 2035," estimating approximately 25 GW of solar and 20 GW of wind additions over that period.

The growth reflects the federal stimulus package passed in December 2020, the rapid decline in clean energy product costs and the potential for continued federal support for clean energy.

That stimulus package and government funding bill provided the wind industry with a one-year extension of the land-based wind power production tax credit at 60% of its full value. It also provided a two-year extension of the solar energy investment tax credit at 26% of its full value. That credit was scheduled to ramp down to 22% in 2021.

Morgan Stanley Research is a division of Morgan Stanley & Co. LLC.