US electricity generation from renewable sources will increase to 23% in 2023 from 20% last year, as solar and wind begin to erode the leading market share of natural gas, according to a new report from the Energy Information Administration (EIA).
That shift, if lasting, would end the steady market gains of natural gas that began in 2014, enabling it to surpass coal two years later as the leading generation source in the world’s largest electricity market. Renewables will take 22% of the US power market this year.
EIA in its Short-Term Energy Outlook released this week forecasts that natural gas generation will fall from a 37% share in 2021 to 35% this year and in 2023.
This will occur even though its cost for power generation will decline from an average $5.85/MMBtu this quarter to an annual average of $4.21/MMBtu in 2023, according to the agency, which is the statistics arm of the Department of Energy.
“Although new natural gas-fired power generating units are scheduled to come online in 2022, they are likely to be run at lower utilisation rates than in recent years,” the report noted, as more and lower-cost solar and wind capacity comes online.
EIA estimates that the US will add 10GW of utility wind capacity this year but only 4GW in 2023, which would be the industry’s weakest performance since 2013. Installations totaled 14GW in 2021.
That potential outcome partly reflects expiration last year of the production tax credit (PTC), the main federal subsidy for onshore wind. Depending on start of construction date from 2016-21, a project can qualify for 40% to 100% PTC value if it meets commercial year-end operation deadlines from 2022 to 2025.
The industry is cautiously optimistic that Congress will extend the incentive and make it retroactive to 1 January this year, although the legislative vehicle for doing this and the timeframe remain unclear.
The nascent US offshore wind sector, meanwhile, will begin installing capacity in 2023 although how much will enter commercial operation from the flagship 800MW Vineyard Wind I project off the coast of Massachusetts is unclear.
EIA is bullish on utility solar, forecasting 20GW in new capacity this year and 24GW in 2023 compared with 13GW in 2021. “We expect solar additions to account for nearly half of new electric generating capacity in 2022,” said the report.
The agency held firm in its belief that coal-fired electricity generation will resume its decline that began in 2014 and continued through 2020 before edging up last year and remaining flat in 2022, as some utilities consumed more in response to high natural gas prices.
EIA forecasts coal will generate 23% of US electricity again this year but decline to 21% in 2023 with plant retirements a major contributor. Coal will represent 85% of 14.9GW of planned capacity this year set for retirement. Cheaper renewables will also continue to pressure utilities to shutter older facilities that are more expensive to operate.