‹ Analysis & Projections

Annual Energy Outlook 2016

Full Release Date: September 15, 2016   |  Next Early Release Date:  January 2017   |  full report

Electricity generation

Total electricity use in the AEO2015 Reference case, including both purchases from electric power producers and on-site generation, grows by an average of 0.8%/year, from 3,836 billion kilowatthours (kWh) in 2013 to 4,797 billion kWh in 2040. The relatively slow rate of growth in demand, combined with rising natural gas prices, environmental regulations, and continuing growth in renewable generation, leads to tradeoffs between the fuels used for electricity generation. From 2000 to 2012, electricity generation from natural gas-fired plants more than doubled as natural gas prices fell to relatively low levels. In the AEO2015 Reference case, natural gas-fired generation remains below 2012 levels until after 2025, while generation from existing coal-fired plants and new nuclear and renewable plants increases (Figure 31). In the longer term, natural gas fuels more than 60% of the new generation needed from 2025 to 2040, and growth in generation from renewable energy supplies most of the remainder. Generation from coal and nuclear energy remains fairly flat, as high utilization rates at existing units and high capital costs and long lead times for new units mitigate growth in nuclear and coal-fired generation. Considerable variation in the fuel mix results when fuel prices or economic conditions differ from those in the Reference case.


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AEO2015 assumes the implementation of the Mercury and Air Toxics Standards (MATS) in 2016, which regulates mercury emissions and other hazardous air pollutants from electric power plants. Because the equipment choices to control these emissions often reduce sulfur dioxide emissions as well, by 2016 sulfur dioxide emissions in the Reference case are well below the levels required by both the Clean Air Interstate Rule (CAIR)[29] and the Cross-State Air Pollution Rule (CSAPR).[30],[31]

Total electricity generation increases by 24% from 2013 to 2040 in the Reference case but varies significantly with different economic assumptions, ranging from a 15% increase in the Low Economic Growth case to a 37% increase in the High Economic Growth case. Coal-fired generation is similar across most of the cases in 2040, except the High Oil and Gas Resource case, which is the only one that shows a significant decline from the Reference case, and the High Oil Price case, which is the only one showing a large increase (Figure 32). The coal share of total electricity generation drops from 39% in 2013 to 34% in 2040 in the Referencecase but still accounts for the largest share of total generation. When natural gas prices are lower than those in the Reference case, as in the High Oil and Gas Resource case, the coal share of total electricity generation drops below the natural gas share by 2020. When total electricity generation is reduced in the Low Economic Growth case, and as a result there is less need for new generation capacity, coal-fired generation maintains a larger share of the total.


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Total natural gas-fired generation grows by 40% from 2013 to 2040 in the AEO2015 Reference case—and the natural gas share of total generation grows from 27% to 31%—with most of the growth occurring in the second half of the projection period. The natural gas share of total generation varies by AEO2015 case, depending on fuel prices; however, its growth is also supported by limited potential to increase coal use at existing coal-fired generating units, which in some regions are already at maximum utilization rates. In the High Oil Price case, the natural gas share of total electricity generation in 2040 drops to 23%. In the High Oil and Gas Resource case, with delivered natural gas prices 44% below those in the Reference case, the natural gas share of total generation in 2040 is 42%. Lower natural gas prices in the High Oil and Gas Resource case result in the addition of new natural gas-fired capacity, as well as increased operation of combined-cycle plants, which displace some coal-fired generation. The average capacity factor of natural gas combined-cycle plants is more than 60% in the High Oil and Gas Resource case, compared with an average capacity factor of around 50% in the Reference case (Figure 33), while the average capacity factor of coal-fired plants is lower in the High Oil and Gas Resource case than in the Reference case.


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Electricity generation from nuclear units across the cases reflects the impacts of planned and unplanned builds and retirements. Nuclear power plants provided 19% of total electricity generation in 2013. From 2013 to 2040, the nuclear share of total generation declines in all cases, to 15% in the High Oil and Gas Resource case and to 18% in the High Oil Price case, where higher natural gas prices lead to additional growth in nuclear capacity.

Renewable generation grows substantially from 2013 to 2040 in all the AEO2015 cases, with increases ranging from less than 50% in the High Oil and Gas Resource and Low Economic Growth cases to 121% in the High Economic Growth case. State and national policy requirements play an important role in the continuing growth of renewable generation. In the Reference case, the largest growth is seen for wind and solar generation (Figure 34). In 2013, as a result of increases in wind and solar generation, total nonhydropower renewable generation was almost equal to hydroelectric generation for the first time. In 2040, nonhydropower renewable energy sources account for more than two-thirds of the total renewable generation in the Reference case. The total renewable share of all electricity generation increases from 13% in 2013 to 18% in 2040 in the Reference case and to as much as 22% in 2040 in the High Oil Price case. With lower natural gas prices in the High Oil and Gas Resource case, the renewable generation share of total electricity generation grows more slowly but still increases to 15% of total generation in 2040.


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Total electricity generation capacity, including capacity in the end-use sectors, increases from 1,065 GW in 2013 to 1,261 GW in 2040 in the AEO2015 Reference case. Over the first 10 years of the projection, capacity additions are roughly equal to retirements, and the level of total capacity remains relatively flat as existing capacity is sufficient to meet expected demand. Capacity additions between 2013 and 2040 total 287 GW, and retirements total 90 GW. From 2018 to 2024, capacity additions average less than 4 GW/year, as earlier planned additions are sufficient to meet most demand growth. From 2025 to 2040, average annual capacity additions—primarily natural gas-fired and renewable technologies—average 12 GW/year. The mix of capacity types added varies across the cases, depending on natural gas prices (Figure 35).


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In recent years, natural gas-fired capacity has grown considerably. In particular, combined-cycle plants are relatively inexpensive to build in comparison with new coal, nuclear, or renewable technologies, and they are more efficient to operate than existing natural gas-, oil- or coal-fired steam plants. Natural gas turbines are the most economical way to meet growth for peak demand. In most of the AEO2015 cases, the growth in natural gas capacity continues. Natural gas-fired plants account for 58% of total capacity additions from 2013 to 2040 in the Reference case, and they represent more than 50% of additions in all cases, except for the High Oil Price case, where higher fuel prices for natural gas-fired plants reduce their competitiveness, and only 36% of new builds are gas-fired. With lower fuel prices in the High Oil and Gas Resource case, natural gas-fired capacity makes up three-quarters of total capacity additions.

Coal-fired capacity declines from 304 GW in 2013 to 260 GW in 2040 in the Reference case, as a result of retirements and very few new additions. A total of 40 GW of coal capacity is retired from 2013 to 2040 in the Reference case, representing both announced retirements and those projected on the basis of relative economics, including the costs of meeting environmental regulations and competition with natural gas-fired generation in the near term. As a result of the uncertainty surrounding future greenhouse gas legislation and regulations and given its high capital costs, very little unplanned coal-fired capacity is added across all the AEO2015 cases. About 19 GW of new coal-fired capacity is added in the High Oil Price case, but much of that is associated with CTL plants built in the refinery sector in response to higher oil prices.

Renewables account for more than half the capacity added through 2022, largely to take advantage of the current production tax credit and to help meet state renewable targets. Renewable capacity additions are significant in most of the cases, and in the Reference case they represent 38% of the capacity added from 2013 to 2040. The 109 GW of renewable capacity additions in the Reference case are primarily wind (49 GW) and solar (48 GW) technologies, including 31 GW of solar PV installations in the end-use sectors. The renewable share of total additions ranges from 22% in the High Oil and Gas Resource case to 51% in the High Oil Price case, reflecting the relative economics of natural gas-fired power plants, which are the primary choice for new generating capacity.

High construction costs for nuclear plants limit their competitiveness to meet new demand in the Reference case. In the near term, 5.5 GW of planned additions are put into place by 2020, offset by 3.2 GW of retirements over the same period. After 2025, 3.5 GW of additional nuclear capacity is built, based on relative economics. In the High Economic Growth and High Oil Price cases, an additional 10 GW to 13 GW of nuclear capacity above the Reference case is added by 2040 to meet demand growth, as a result of higher costs for the alternative technologies and/or higher capacity requirements.

Endnotes

  1. U.S. Environmental Protection Agency, “Clean Air Interstate Rule (CAIR)” (Washington, DC: February 5, 2015), http://www.epa.gov/airmarkets/programs/cair/.
  2. U.S. Environmental Protection Agency, “Cross-State Air Pollution Rule (CSAPR)” (Washington, DC: October 23, 2014), http://www.epa.gov/airtransport/CSAP.
  3. The AEO2015 Reference case assumes implementation of the Clean Air Interstate Rule (CAIR), which has been replaced by the Cross-State Air Pollution Rule (CSAPR) following a recent D.C. Circuit Court of Appeals decision to lift a stay on CSAPR. Although CAIR and CSAPR are broadly similar, future AEOs will incorporate CSAPR, absent further court action to stay its implementation.