June 17, 2016
EIA’s Annual Energy Outlook 2016 (AEO2016) Reference case projects that natural gas-fired electricity generation will exceed coal-fired electricity generation by 2022, while generation from renewables—driven by wind and solar—will overtake coal-fired generation by 2029. The shift away from coal-fired generation to a combination of higher natural gas-fired and renewables generation and greater energy efficiency is expected to be accelerated by the U.S. Environmental Protection Agency’s Clean Power Plan (CPP).
Notably, the share of natural gas-fired generation exceeded coal-fired generation in 2016, according to EIA’s latest Short-Term Energy Outlook. However, in the AEO2016 Reference case, the natural gas-fired share of generation declines temporarily after 2016, then resumes rising in about 2020 and once again exceeds the coal-fired share in 2022 and throughout the rest of the AEO2016 projection to 2040.
Even without the CPP, significant growth in renewables generation is projected throughout the country, due in large part to Congress’s recent extension of favorable tax treatment for renewable energy sources. From 2015 to 2030, for the nation as a whole in a scenario where the CPP is never implemented, EIA projects that renewables generation will increase at an annual average rate of 3.9%, while natural gas generation will grow at 0.6% per year. In the Reference case, which assumes the implementation of the Clean Power Plan, renewables and natural-gas fired generation grow at 4.7% and 1.6% annually from 2015 to 2030, respectively.
In the final version of the CPP, states with higher intensity levels generally have greater requirements for reduction of CO2 emissions.
EIA’s analysis of the U.S. electricity market is divided into 22 regions, which in this discussion are further reduced to 9 regions shown above. The current generation mix across these regions varies considerably, with significant differences in the use of fossil-fuel, nuclear, and renewable energy sources.
Certain regions such as the Midwest/Mid-Atlantic, Southwest/Rockies, and Northern Plains—regions that are home to much of U.S. coal production—tend to have greater reliance on coal-fired electricity generation. These regions have among the highest CO2 reduction requirements and are expected to have the largest shifts in their generation mix. In the Midwest/Mid-Atlantic region, a large decline in coal generation is offset by an increase in natural gas generation and relatively modest growth in renewable generation. These projected changes are expected to result in a 26% decline in the Midwest / Mid-Atlantic region’s emission rate—from 1,826 to 1,357 pounds of CO2 per megawatthour, the largest drop of any region in both percentage and absolute terms.
The Southwest/Rockies region is projected to see an expansion of renewables generation that is nearly twice as large as the decline in coal generation. In the Northern Plains region, a decline in coal generation is exceeded by a slightly larger shift to renewables generation, with smaller growth in natural gas generation. Other regions, such as Texas, the Southern Plains, and the Southeast, rely more on natural gas-fired generation. The projected decline in these regions’ coal generation is more modest, and they all are expected to see strong gains in renewables generation, with some additional growth in natural gas generation.
Finally, the Northeast region and California currently have almost no coal generation and meet most of their demand with natural gas generation, along with renewables generation in California and a mix of nuclear and renewables generation in the Northeast. While the Northwest region does have some coal generation, it has the largest renewable generation total of any region because of its extensive hydroelectric resources. These regions have among the lowest emission reduction requirements, and as a result are expected to register small or no change in generation mix as a result of the CPP.
California sees strong growth in renewable generation by 2030 as a result of the state renewable targets. Similarly, the Northwest region is expected to increase renewables generation as well. The Northeast shows an increase in both natural gas and renewables generation by 2030, and a small decline in nuclear generation due to planned retirements.
The Reference case assumes that all states implement the Clean Power Plan using a mass-based standard that caps emissions from both existing and new plants, with allowance revenues rebated to rate payers. Because the plan allows flexibility in implementation approaches, EIA produced several alternative cases that consider how outcomes change with different implementation approaches, and in a scenario with tighter standards beyond 2030. Compliance decisions by the states (as well as any future court decision that would vacate the rule) have implications for plant retirements, capacity additions, and generation by fuel type, demand, and prices. An AEO2016 Issues in focus article released early next week will explore the results of this analysis.
Principal contributors: Thad Huetteman, Laura Martin