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Energy transition remains strong despite pandemic, more work needed for decarbonization

Highlights

Retirements to lead to 70% coal reduction by 2040

Light-duty electric vehicles to grow 344% by 2040

120 GW of storage in US interconnection queues

Renewable additions experienced little impact from the coronavirus pandemic with even stronger gains expected in 2021; however, more work is needed to reach decarbonization goals, S&P Global Platts power experts said April 13 during the Global Power Markets conference.

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Although coal retirements slowed as higher gas prices led to gas-to-coal switching, coal and nuclear will be hit hardest in the years to come as renewables push them out of the mix. Wind, solar and hydro generation jumped 50% year on year in 2020 across the globe, with wind more than doubling year on year, said Bruno Brunetti, Head of Global Power Planning at S&P Global Platts, adding that China accounts for more than half of global renewables.

"We're still seeing we're not quite there if we want to decarbonize," Brunetti said. "We still have much more to do when it comes to decarbonization. We're still seeing growth in fossil fuels."

Globally, coal is still being added to the power system with China accounting for 50% of the world's supply.

"What China does for coal is very important to all of us," Brunetti said.

However, there is a shift to renewables additions.

"The US is the second county in the world for wind and solar capacity in the world," Brunetti said, adding that wind is the dominate renewable and is strongest in the Midwest regions, specifically the Electric Reliability Council of Texas, Southwest Power Pool and the Midcontinent Independent System Operator.

"Transmission has not been upgraded to the same extent," Brunetti said about the increased frequency of negative prices.

Wind and solar growth

"The share of total generation is increasing being taken up by solar and wind. The big loser in all of this is coal," Manan Ahuja, manager of North American Power Analytics at S&P Global Platts, said during an April 12 conference workshop. "In 2021, we expect strong renewable installations to continue."

More solar than wind is expected as technology costs associated with solar and storage are declined pretty fast.

"They're just becoming more economically competitive," Ahuja said. "Coal and nuclear are getting pushed out."

Coal retirements will pull 70% of its capacity out of the market by 2040, while nuclear retirements will take out 30% during that same time, Ahuja said.

Higher gas-fired generation in the US contributed to lower power sector emissions over the last decade by at least 25%, but its role as a bridge fuel is looking shaky and is narrowing, Brunetti said April 13.

However, higher natural gas prices year on year in 2020 led to the switch back to coal from gas, Ahuja said.

The gas to coal switching will continue into 2021 and 2022, especially during peak power periods, Brunetti said, adding that coal retirements slowed in 2021 but will pick up in 2022.

"In the longer term, we do see a lot of coal exiting the system," Brunetti said, adding that 70% of US coal is focused in three regions: PJM Interconnection, MISO and the Southeast.

Clean energy policy

The power sector is already bouncing back from pandemic impacts, but it is not enough to reach clean energy goals, said Roman Kramarchuk, Head of Future Energy Analytics at S&P Global Platts.

Emission reductions have ranged from 35% to 50% below 2005 levels, but all coal generation will need to disappear by 2030 to achieve the US goals of carbon-free power by 2035 and net-zero greenhouse gas emissions by 2050, Kramarchuk said.

"States can be real drivers of change," Kramarchuk said of US states setting renewable and carbon-free goals with lack of a federal policy.

The US has 20 states, plus Washington, with aggressive plans in the works for 100% renewable power, carbon-free power or net-zero emissions, roughly double the number from a year ago, according to a Platts comprehensive analysis. California, Massachusetts and New York are some of the leaders and represent major parts of the US power sector turning to cleaner energy sources, Kramarchuk said.

Electric vehicles are also ramping up, increasing 40% year on year in 2020 despite the pandemic, Kramarchuk said, adding that transport electrification can underpin load. Power demand from light-duty EVs is expected to grow from 45 TWh to 200 TWh by 2040.

Storage

US storage capacity has benefited from federal incentives. Storage additions had a record year in 2020 with 700 MW added, Kramarchuk said, adding that the US storage market is being driven by the California ISO and ERCOT while key drivers differ by region.

There is currently 120 GW of energy storage in the interconnection queue across the US, and although not all of that will be built, it offers sentiment in the sector for adding storage, mostly connected to solar resources, Kramarchuk said.

Hydrogen is seen as being transformative in the energy transition, and it can be applied to sector that are hard to decarbonize, Kramarchuk said, but added that renewable hydrogen is less preferred in North America and is not really being used by the power sector.