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Annual Energy Outlook 2021

Release Date: February 3, 2021  |  Next Release Date: January 2022  |  AEO Narrative
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Renewable electricity generation increases more rapidly than overall electricity demand through 2050

Sustained low natural gas prices do not result in significant increases in the share of natural gas generation in the Reference case

Electricity generation by case

Figure data

The share of natural gas in the generation mix remains flat, hovering at about one-third from 2020 to 2050. The share remains the same even though natural gas prices remain low (at or lower than $3.50 per million British thermal units) for most of the projection period, despite significant coal and nuclear generating unit retirements resulting from market competition, as regulatory and market factors induce more renewable electric generation.

Renewable electric generation is used to meet an increasing share of additional demand

As the share of natural gas-fired generation remains relatively flat, and as the contribution from the coal and nuclear fleets drops by half, the renewables’ share of the electricity generation mix more than doubles from 2020 to 2050. Wind is responsible for most of the growth in renewables generation from 2020 through 2024, accounting for more than two-thirds of those increases in electricity generation during that period. After the production tax credit (PTC) for wind phases out at the end of 2024, solar generation is responsible for almost three-quarters of the increase in renewables generation. EIA assumes solar receives a 30% investment tax credit (ITC) through 2023, which is then reduced to a permanent value of 10% in 2024 and forward.

Impacts of COVID-19 on natural gas prices led to near-term trade-offs between coal and natural gas generation

Electricity generation by case

Figure data

In 2020, low heating demand early in the year because of warmer-than-normal weather, along with COVID 19-related demand reductions, led to natural gas production outpacing demand. The oversupply of natural gas led to the lowest natural gas prices since the 1990s. In addition, responses to the pandemic caused disruptions in the coal supply chain as mines temporarily closed to limit the spread of the virus. COVID 19-related impacts to the coal supply chain, as well as the lowest natural gas prices in a few decades, caused the projected share of coal-fired generation to decrease by over 4% in 2020 (from 23% in 2019 to 19% in 2020). At the same time, the share of natural gas-fired generation increased by about half that amount (from 38% in 2019 to 40% in 2020). EIA projects natural gas prices to increase by more than one-half in 2021 as the natural gas share of the generation mix returns to pre-COVID-19 levels and maintains that share through 2050. Similarly, coal generation in 2022 also increases with electricity demand and the rising natural gas prices before returning to its longer-term structural decline.

As more solar and wind energy is integrated into the electricity grid, natural gas-fired generating unit capacity factors steadily decrease

Fossil fuel-fired plant capacity factors

Figure data

As a result of faster growing natural gas-fired generating capacity than natural gas-fired generation from 2020 to 2050, capacity factors for natural gas units decline steadily across all plant technology types. As more wind and solar capacity is added that displaces generation from both existing and new natural gas-fired generators, capacity factors for existing combined-cycle units will drop by nearly half from a peak of 60% in 2020. Natural gas accounts for over 40% of cumulative capacity additions from 2020 to 2050. About half of these additions are low-utilization combustion turbines, which are economically attractive when mostly used to provide infrequent peaking capacity. Energy storage systems, such as stand-alone batteries or solar/battery hybrid systems, are used as an arbitrage tool to move solar and other generation from periods of high supply and low demand to periods of low supply and high demand.

As the share of natural gas-fired generation remains relatively flat, and as the contribution from the coal and nuclear fleets drops by half, the renewables’ share of the electricity generation mix more than doubles from 2020 to 2050.