EIA: Policy and $3 Gas Could Prompt Accelerated Decline of Coal Power, Renewables

The U.S. power sector will see heightened electricity consumption over the next two years, a spurt in natural gas–fueled power generation that is expected to offset a slight decline in coal power, and a significant decline in hydropower generation that could mark a decline in overall renewable generation, the Energy Information Administration (EIA) says in its latest short-term outlook.

The EIA’s 2012 edition of the Short-Term Energy Outlook projects energy use and supply in the U.S. in 2012 and 2013. Among the new report’s highlights is the projection that U.S. consumption of electricity will rise slightly during 2012 and then grow another 1.6% during 2013. The increase in consumption will not be driven by higher-than-average temperatures, as occurred in 2010 and 2012, when cooling degree-days were 18% higher than the 30-year average. According to the National Oceanic and Atmospheric Administration, summer temperatures in 2012 will be “close” to the 30-year normal. This means less power will be consumed for air conditioning, prompting a drop in electricity sales to the residential sector of 0.5% in 2012, the EIA says.

Instead, residential electricity consumption will rise 2.1% as a result of increased growth in the number of households. Increasing growth in economic activity could contribute to another 0.8% growth in retail sales of power to the industrial sector in 2012, and another 1.7% in 2013.

Average residential electricity prices will rise only 0.6% in 2012 and stay flat in 2013, the federal body says. That’s a small increase compared to the 2.1% rise of power prices over 2010 and 2011.

Generation Fuel Outlook Uncertain

Last year, the power sector saw finalization of two landmark rules by the Environmental Protection Agency (EPA): the Mercury and Air Toxics Standards (MATS) rule on Dec. 21 and the Cross-State Air Pollution Rule (CSAPR) last July. CSAPR—scheduled to become effective on Jan. 1 of this year—was stayed on Dec. 30 by a federal appellate court until a decision can be made on the merits of the rule.

In its short-term outlook, the EIA cautions that the two rules and the court’s decision introduced “extra uncertainty into EIA’s projections of the mix of fuels,” saying, “The timing and pace of change in industry generation dispatch patterns remains unclear.”

Base generation projections forecast that coal—which made up a 43% share of the nation’s total generation (4.793 billion kWh)—will decline to 42.2% in 2012, and then drop to 41.5% in 2013. Natural gas–fueled generation will increase from 24.4% in 2011 (2.524 billion kWh) to 25.4% in 2012 and 25.8% in 2013.

The decline in coal power will be accompanied by a fall in coal consumption for generation. Coal consumption for generation slumped 30 million short tons, or 3.1%, in 2011, compared to 2010. This year, coal consumption for generation will fall another 2.1%. The EIA expects the decline in electric power sector coal consumption to continue in 2013, “although at a slower rate, as increases from other sources continue to displace coal-fired electricity generation,” the agency says in its report.

One reason for this is that delivered coal prices to the power sector have escalated over the past decade—a trend that continued in 2011, when the average delivered coal price was $2.40 per MMBtu. Coal prices will remain at similar levels in 2012 and 2013, the EIA forecasts, even though “several factors are exerting downward pressure on the average delivered coal price, including lower demand for coal to generate electricity, lower natural gas prices, and concerns about the effects of the U.S. Environmental Protection Agency’s (EPA) Cross-State Air Pollution Rule (CSAPR) and the timing of its implementation.”

Meanwhile, the EIA projects Henry Hub natural gas spot prices will average $3.53/MMBtu in 2012, falling from a final average Henry Hub spot price in 2011 of $4/MMBtu. In 2013, the forecast spot price rises to an average of $4.14/MMBtu.

A Sluggish Rise for Nuclear, Renewables
The EIA does not provide an analysis for nuclear generation, except to say that power from the nation’s nuclear plants will see a slight increase from 2.155 billion kWh in 2011 to 2.221 billion kWh in 2012 and 2.266 billion kWh in 2013.

But the nation’s renewables sector will be a “complex landscape” from 2011 through 2013, following the expiration at the end of last year of a 30% grant taken in lieu of both an investment tax credit (ITC) and a production tax credit (PTC), the agency says. Both the PTC and ITC are set to expire for wind projects built after 2012, and credits for other eligible renewables expire at the end of 2013. Solar energy, not eligible for the PTC, has its own ITC that will be reduced from 30% to 10% at the end of 2016.

Renewables saw the largest spurt of any power source in 2011, growing 12%. But in 2012, the total renewable energy supply could decline by 2.3% mostly because of an expected 13% decline in hydropower from 2011 levels. In 2013, renewables will again increase by 2.1%.

Wood and wood waste biomass power, which declined 1.6% over the past two years, will see growth of 1.7% in 2012 and 2.2% in 2013. Wind—which grew 24% over 2010 and 2011—will see a slowed growth rate, projected at just 9.4% in 2012 and 11.3% in 2013. Solar will also see growth, surging 6.7% and 8.5% in 2012 and 2013, respectively, reaching a total of 0.13 quadrillion Btu in 2013. About 80% of the near-term growth in central station solar energy (both solar photovoltaic and solar thermal) is from projects being developed in the southwestern U.S., the EIA suggests.

“However, on a Btu basis, 89% of solar energy in 2010 was related to residential consumption in the form of photovoltaic and solar thermal collectors. This percentage is projected to decline as more central power station projects come on line.”

—Sonal Patel is POWER’s senior writer. This article first appeared in POWERnews.

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