Electricity is a surprisingly dynamic market. Although consumers are generally more interested in the reliability of power rather than the details of fuel mixes, behind the scenes, the industry juggles predictions about future demand and prices, fuel sources and regulations. For the last several years, growth in alternative energy, especially solar, and sustained low natural gas prices have forced the closure of American coal and nuclear generators. Especially with regard to coal, these closures mark dramatic shifts in certain regional economies and have sparked heated discussions about the wisdom of political efforts to preserve these plants. What is less frequently discussed are the underpinnings of the American electricity market, where stagnant demand over the last several years has pushed natural gas plants to close as well.
“Closing these plants is more proof that clean energy is driving gas out of California. As clean energy grows, our reliance on gas generation is falling quickly and we urge the California Independent System Operator to continue looking at innovative ways to replace these projects with clean energy solutions” Evan Gillespie, campaign manager for the Sierra Club’s My Generation Campaign said in March.
California is one of the most visible opponents of natural gas plants. Right now, three aging natural gas plants are slated to close this year. Meanwhile, applications for the construction of new plants are being sidelined over concerns about permitting and demand.
American utility markets are regional, meaning that coal and natural gas may remain a positive investment in certain areas of the country even as they are priced out of other markets. Even so, electricity markets have tightened as demand for power has remained largely steady. As a result, less competitive generation methods–particularly coal and nuclear–have found it difficult to compete on price alone, leaving them little option but to close.
In the past decade, coal plants accounted for 47 percent of retired capacity. An additional 26 percent of retired capacity came from natural gas, though. Last year, 6.3GW of coal capacity were retired, compared to 4.0GW of older gas plants, which were offset by the construction of 9.3GW of natural gas capacity brought online. In many circumstances, the decision to close a plant reflected the realities of government regulation, aging equipment, and changes in the regional power markets.
Market demand has pressured electricity providers to be very sensitive to fuel price fluctuation. Because of both fortunate weather (warmer winters) and advances in energy efficient lighting and appliances, residential electricity sales per household declined 9 percent between 2010 and 2016. Much of the decrease is linked to the use of energy efficient lighting and appliances.
Graphs from the U.S. Energy Information Administration (EIA)’s 2018 Annual Energy Outlook report show that overall American energy consumption has largely plateaued since 2000, with noticeable decreases in energy use around 2010. Projecting forward, the EIA sees energy consumption as being closely tied to both economic growth and technological development.
Over the last two decades, the U.S. economy has become more efficient in using energy. This is demonstrated by statistics that measure energy intensity, or the amount of energy needed to produce one unit of GDP, and also by carbon intensity, or how much CO2 is released per million BTU of energy produced. Between 1990 and 2017, energy intensity in the U.S. decreased by about one third, meaning that industrial processes are becoming dramatically more efficient.
“In the United States, the amount of energy used per unit of economic growth (energy intensity) has declined steadily for many years, while the amount of CO2 emissions associated with energy consumption (carbon intensity) has generally declined since 2008,” the EIA reports.
The agency predicts that this trend will continue and that by 2050, energy intensity will be 42 percent lower than the 2017 numbers.
Although the demand for electricity has remained relatively flat for the past decade, the EIA forecasters are hesitant to predict that the trend will continue indefinitely, especially if the economy continues to pick up. Not all energy analysts buy this prediction, however, noting that growth in the electricity load did not accompany the Obama-era recovery.
“[The Outlook] says that even though load growth has been flat/negative through the entire recovery, load will magically start growing again,” tweeted Michael Wara, director of the Climate and Energy Policy Program at the Stanford Woods Institute for the Environment. “At some point you have to look at the world/data instead of your map/model.”
The trouble with any long term energy prediction is that technological innovation is relatively unpredictable. What the future holds for not only natural gas, but also the broader electric utility market is uncertain. In the meantime, Americans are learning to do more with less.