Electricity

Electricity Consumption. EIA forecasts total U.S. electricity consumption, including direct use of electricity by combined-heat-and-power plants, will increase by 1.5% in 2021 and by 1.7% in 2022. Social distancing guidelines related to the COVID-19 pandemic and restrictions on some economic activity such as limits on the number of customers in restaurants and retail stores have affected electricity consumption patterns over the past year. Residential electricity consumption has risen because people are staying at home for longer periods during the day and because many are working from home. In contrast, electricity consumption in the commercial and industrial sectors has fallen.

During the spring of 2020, retail sales of electricity to the residential sector were about 9% higher than the typical heating and cooling demand given the temperatures at that time. This effect appears to have moderated somewhat in recent months, averaging about 4% above typical consumption since July. EIA expects the effect of increased residential electricity usage to gradually decline through the first half of 2021. In addition, electricity usage for heating during the first quarter of 2021 will likely be more than the same period last year because of colder weather in the United States, with 11% more heating degree days. Annual residential electricity retail sales increased by 1.3% in 2020 and are forecast to grow by 2.4% in 2021 and by 1.6% in 2022.

Electricity consumption in the commercial sector during 2020 was down by an estimated 6.0% from 2019 as a result of the economic contraction related to COVID-19. In addition, electricity use at some office buildings may have been lower as some people were working from home instead of in their offices. EIA expects commercial activity to increase in 2021 with non-farm employment rising by 2.8%. However, some of the changes in working patterns may continue in the long term, reducing the need for electricity use at offices. EIA forecasts commercial sector retail electricity sales will grow by 0.9% in 2021 and by 1.8% in 2022.

Improving economic conditions will also likely increase electricity demand in the industrial sector. EIA forecasts that industrial production by electricity-intensive industries will increase by 2.9% in 2021 after declining 6.9% in 2020. This expected increase in industrial production contributes to EIA’s forecast that retail sales of electricity to the industrial sector will rise by 1.2% in 2021. In 2022, EIA forecast retail sales of electricity to the industrial sector will increase by 1.1%.

Electricity Generation. EIA expects 1.2% more power generation in the U.S. electric power sector during 2021 than in 2020. Electric power sector generation in the forecast grows by an additional 1.5% in 2022.

The share of U.S. electricity generation supplied by natural gas-fired power plants has increased significantly during the past decade, rising from 23% of total generation in 2010 to an estimated 39% in 2020. Reduced generation from coal-fired power plants has offset this increase. Coal supplied 46% of U.S. generation in 2010, compared with an estimated 20% in 2019. Much of this change in the generation mix has been the result of sustained low prices for natural gas.

The cost of natural gas delivered to electric power generators was often below $3.00/MMBtu during the past two years. During 2020, the U.S. cost of delivered natural gas averaged an estimated $2.37/MMBtu, which would be the lowest price in nominal dollars since 1995. EIA forecasts the average cost of natural gas for electricity generation to rise by 41% to an average of $3.35/MMBtu in 2021, which is about the same price as in 2017. Forecast average U.S. delivered natural gas prices rise by an additional 8.9% in 2022.

These expected changes in the costs of fuels used for generating power will likely affect the use of coal and natural gas for electricity generation. EIA forecasts that the natural gas-fired share of total U.S. generation will decline to 36% in 2021 and 34% in 2022, which would be about the same natural gas share as in 2018. The expected rise in natural gas fuel costs make coal more economic for electricity generation, with EIA’s forecast share of generation from coal-fired power plants rising to 22% in 2021 and 24% in 2022. However, these shares of coal generation would still be the second- and third-lowest share in history after the 20% share in 2020.

EIA expects the share of generation from renewable sources will increase from 20% in 2020 to 21% in 2021 and to 23% in 2022. Within the renewables category, hydropower generally averages about 7% of total generation, and EIA forecasts that it will be about that share in 2021 and in 2022. In the forecast, the share of total generation for renewables other than hydropower, which was 12% in 2020, will rise to 14% in 2021 and to 16% in 2022.

According to the latest information about the U.S. inventory of generating capacity, six nuclear reactors are scheduled to retire in either 2021 or 2022, and two are scheduled to come online. The forecast nuclear share of total electricity generation, which averaged nearly 21% in 2020 will fall to 20% by 2021 and to 19% in 2022, consistent with upcoming retirements.

Renewable Capacity. Over the next two years, renewable generating capacity continues to grow. Wind capacity growth begins to moderate, but solar capacity growth continues. In 2021, large-scale solar capacity growth in gigawatts (GW) exceeds wind growth for the first time. EIA forecasts that 15 GW of solar photovoltaic (PV) generating capacity in the electric power sector will be added in 2021, with an additional 12 GW forecast for 2022. Small-scale solar PV capacity is forecast to increase by 4 GW in 2021, with another 3 GW forecast for 2022. Residential PV accounts for most of this additional small-scale generating capacity for both 2021 and 2022. EIA’s forecast solar capacity growth reflects various state and federal policies to support renewable energy.

Tariffs on PV modules decline to 15% in 2021 and expire thereafter. Growth in PV generating capacity over the STEO forecast reflects, in large part, declining global prices for PV modules and increasing prices for natural gas. This anticipated fall in module price is expected to outweigh price increases incurred by the tariff in 2021.

Generating capacity from wind turbines in the electric power sector is forecast to grow by 12 GW in 2021, with an additional 4GW of growth expected for 2022. This growth in forecasted wind generating capacity for 2021 and 2022 marks a decline from the record of 21 GW added in 2020. Because wind capacity is often added at the end of the calendar year, increases in generation frequently lag behind increases in capacity for the year they occur in, and they are reflected in the generation for the next year.

Much of this slowing growth in wind can be attributed to the expiration of the production tax credit. The credit, which at the end of 2019 was extended through 2020, provided a 2.5 cents per kilowatthour (kWh) benefit for facilities entering service or securing 5% safe harboring (spending at least 5% of total estimated project cost) through the 2020 calendar year. The effect of the tax credit extension included in the Consolidated Appropriation Act, 2021, enacted in late-December 2020, is not yet reflected in this forecast. EIA will update its data and forecasts as new information is reported on the EIA-860 survey of planned capacity additions.

Electricity Prices. EIA expects wholesale electricity prices in many areas of the country in 2020 will be higher than last year, reflecting the increased cost of natural gas for power generation. EIA forecasts that annual average wholesale prices in New England will rise 43% this year primarily as a result of expected colder winter weather that contributes to rising natural gas prices. However, in California, forecast wholesale electricity prices in 2021 average 8.1% lower than last year, primarily reflecting fewer spikes in prices related to hot summer weather as happened in 2020.

EIA forecasts the U.S. retail electricity price for the residential sector will average 13.3 cents/kWh in 2021, which is 1.2% higher than the average retail price in 2020. Forecast residential prices increase by an additional 1.2% in 2022.