After decades of lethargic power demand—and negative growth in 2017—U.S. electricity use is expected to grow steadily through 2050, driven by a healthy economy and increasing efficiency, the U.S. Energy Information Administration (EIA) projects in its Annual Electricity Outlook 2018 (AEO2018).
However, during that period, direct-use generation will outpace growth in retail sales as more rooftop photovoltaic (PV) and natural gas combined heat and power (CHP) installations are adopted, says the agency’s annual report, which models projections of domestic energy markets through 2050 to pinpoint key trends affecting energy use and supply.
Meanwhile, a boost in natural gas production could markedly tamp down gas prices, roiling the outlook for other fuel sources in the current generation mix. While gas spot prices may increase despite continued technological advances that support increased production, prices at Henry Hub are expected to be 14% lower on average through 2050 compared to a reference case modeled in the EIA’s 2017 report, owing to an estimated increase in lower-cost resources, primarily in the Permian and Appalachian basins.
A Bane and Boon of Cheap Gas
The AEO2018, compared to AEO2017, dismisses impacts of the Clean Power Plan—the Obama administration’s legacy climate rule that remains in legal limbo and will likely be replaced. It also factors in a number of current state and regional policies, including the Illinois Future Energy Jobs Act, the New York Clean Energy Standard, the Maryland Clean Energy Jobs Act, and the Regional Greenhouse Gas Initiative.
Overall, low gas prices are projected to depress generation costs by 10% from 2017 to 2050. Average power prices are expected to remain relatively flat, however, mainly because transmission costs will increase by 24% and distribution costs will increase by 25%. This reflects a “need to replace aging infrastructure and upgrade the grid to accommodate changing reliability standards,” the EIA said.
Natural gas generation, specifically, is expected to thrive, especially after the scheduled expiration of renewable tax credits in the mid-2020s, the EIA said. Natural gas’s share dominates in the reference case, but it especially soars in the high oil and gas resource and technology case.
But despite dim industry projections for coal-fired generation in recent years owing to regulatory impacts, the EIA’s reference case projects that in the longer term, the relatively low cost of coal will moderate a decline in coal-fired generation. Specifically, coal capacity will fall by 65 GW between 2017 and 2030 but level off near 190 GW through 2050, the AEO2018 projects. High gas prices could slow the pace of coal retirements, but retirements are likely to increase if gas prices fall lower, such as in the high oil and gas case.