The U.S. Energy Information Administration is forecasting that lower natural gas costs will drive annual average wholesale electricity prices for 2019 across the entire United States below electricity prices of 2018.
In its August Short-Term Energy Outlook, the EIA said that its forecast year-over-year declines in U.S. electricity prices will range from -0.2% in the Southwest Power Pool's wholesale market to as much as -28% in the Electric Reliability Council Of Texas. For ERCOT's intrastate market, this amounts to a fall in average prices at its North Hub from $41.43/MWh in 2018 to $29.92/MWh in 2019.
Henry Hub spot prices for natural gas averaged $2.37/MMBtu in July, down 3 cents/MMBtu from June, and by the end of July had fallen below $2.30/MMBtu. A heat wave in mid-July also drove natural gas consumption for power generation to a record daily high of 44.5 billion cubic feet on July 19 as demand for air conditioning soared. Based on this downward price movement and the EIA's forecast for continued strong growth in natural gas production, the EIA has lowered its Henry Hub spot price forecast for the second half of 2019 to an average of $2.36/MMBtu before increasing to an average of $2.75/MMBtu in 2020. In its July outlook, the EIA had expected prices to average $2.50/MMBtu during the second half of 2019. Further, fuel costs for natural gas-fired generation are expected to fall from $3.54/MMBtu in 2018 to $2.78/MMBtu in 2019 and then go up to $2.97/MMBtu in 2020.
The EIA expects the share of U.S. total utility-scale electricity generation from gas-fired power plants will rise from 34% in 2018 to 37% in 2019 before declining slightly in 2020. The share of the U.S. generation mix from coal will average 24% in 2019 and 2020, down from 28% in 2018, while the forecast for nuclear power's share of the mix will remain at about 20% in 2019 and 2020. The EIA expects hydropower to average 7% of the total U.S. generation mix for 2019 and 2020, as it had in 2018. Wind, solar and other non-hydropower renewables together will continue to provide 10% of the mix in 2019, as they did in 2018, before rising to 12% in 2020.
The EIA forecasts that renewables, including hydropower, will collectively produce 18% of total U.S. electricity in 2019 and 19% in 2020. The outlook forecasts the power sector's demand for coal to fall by only 2% in 2020, after a steeper decline of 15% in 2019. Despite this let-up, the EIA said that planned coal plant retirements will continue to put downward pressure on the overall demand for coal-fired generation. According to the report, almost 13 GW of coal-fired generation capacity has retired in 2019 or is scheduled to retire by the end of 2020, accounting for 5% of U.S. coal-fired capacity that existed at the end of 2018.
The EIA's short-term outlook forecasts that U.S. residential retail electricity sales will increase from an average of 12.89 cents/kWh in 2018 to 13.05 cents/kWh for 2019, before increasing to 13.17 cents/kWh in 2020. The outlook also forecasts a continued decrease in U.S. electricity production from 4.18 billion MWh in 2018 to approximately 4.09 billion MWh in 2019, and slightly less in 2020.
In a new change to its monthly outlook, the EIA has improved its regional-level trend analysis by inserting a generator-level production cost model, which simulates hourly generation at individual power plants. According to the agency, this addition improves its insight into generation, especially from fast-growing and intermittent renewable sources like wind and solar.
With the additional "granularity" and an EIA assumption that wind-produced electricity will return to more normal levels in 2019, after a windy first half of 2018, the EIA's forecast results in wind generation averaging 295 billion kWh in 2019 and 335 billion kWh in 2020. These estimates are 4% and 7% lower, respectively, than the EIA's forecast from July. In addition, the EIA explained that the application of hourly dispatch, which better models solar incidence, lowers the solar electric production forecast by 1.1% in 2019 and by 2.8% in 2020.
After rising by 2.7% in 2018, the EIA forecasts in its latest monthly outlook that U.S. energy-related CO2 emissions will decline by 2.3% in 2019 and by 0.5% in 2020. In 2019, the EIA forecasts that space cooling demand, as measured in cooling degree days, will be lower than in 2018, when it was 13% higher than the previous 10-year average for 2008 to 2017. In addition, in 2019, the EIA said it expects U.S. CO2 emissions to decline as a result of an expected increase in the share of electricity generated by natural gas and renewables, coupled with an expected decline in the share of carbon-intensive, coal-fired generation.
However, the EIA said that its projected emissions decline is lower in 2020 than in 2019 because its forecasts for both heating and cooling requirements will be slightly lower than normal. At the same time, the forecast of coal's share of the U.S. generation mix will remain about the same as in 2019, while natural gas' share will decline. Although the EIA forecasts that generation from renewables will continue to increase in 2020, an expected decrease in emissions-free nuclear power will offset 24% of the renewables' gain.