Electricity

Electricity Consumption. We forecast total retail sales of electricity by U.S. utilities and electricity suppliers will increase by 2.8% in 2021 and by 1.0% in 2022. So far this year, estimated U.S. retail electricity sales during 1H21 were 4.5% more than for the same period of 2020. We forecast that electricity sales during 2H21 will grow by 1.2% compared with 2H20.

The relaxing of social distancing guidelines and growing COVID-19 vaccinations have led to increased economic activity compared with last year, especially in restaurants and retail stores, which were most affected by pandemic-related restrictions in 2020. Residential electricity consumption in 2020 noticeably increased because people were staying at home for longer periods during the day and because many were working from home. Residential electricity use is likely to remain elevated as work-from-home arrangements continue for some workers.

Year-to-year changes in residential electricity consumption are most related to changes in temperature, often measured using heating degree days (HDD) and cooling degree days (CDD). We estimate residential electricity sales during 1H21 to be 5.7% more than during the same period in 2020. Much of this increase reflected colder winter temperatures compared with last year’s mild winter and a hot June across much of the country. HDDs in the United States during 1H21 were 6.9% more than in 2020. Based on forecasts from NOAA, our forecast assumes U.S.

HDDs to be higher than last year during 2H21, but the effect on electricity consumption is offset by CDDs in the forecast that are 9.7% lower than in 2H20. We forecast residential electricity sales during 2H21 will be 1.4% lower than residential sales in 2020. Forecast annual residential electricity use grows by 1.9% in 2021 and falls by 0.5% in 2022.

Weather and overall economic activity affect electricity consumption in the commercial sector. Although the colder winter weather earlier this year supported electricity consumption in the commercial sector, economic activity and growth in private-sector jobs were still restrained, especially during 1Q21 compared with the same period in 2020, before the pandemic-related lockdowns began. Nonfarm employment during 1Q21 was 5.6% lower during the same period in 2020, while retail electricity sales to the commercial sector were 2.9% lower. For 2H21, we forecast commercial sector retail electricity sales will grow by 1.7% compared with last year, driven in part by an expected 4.8% increase in nonfarm employment. For 2022, forecast commercial sector electricity use grows by 1.4% on an annual basis.

Improving economic conditions will also likely increase electricity demand in the industrial sector. The U.S. industrial production index for electricity-intensive industries in the forecast increases by 6.5% in 2021 after declining by a similar percentage in 2020. This expected increase in industrial production contributes to our forecast that retail sales of electricity to the industrial sector will rise by 5.1% in 2021. In 2022, we forecast retail sales of electricity to the industrial sector will increase by 2.6%.

Electricity Generation. We expect the U.S. electric power sector will generate 2.1% more power during 2021 than in 2020. Electric power sector generation in the forecast grows by an additional 0.7% in 2022.

One of the largest shifts in fuels for electricity generation in recent years has been the industry’s reduced use of coal and increased use of natural gas. Coal-fired electricity generation in the United States has declined almost every year over the past decade. The amount of U.S. coal generation in 2020 was 62% below its high in 2007. In contrast, natural gas generation grew by 86% between 2007 and 2020.

Both regulatory and economic factors are driving this trend of declining coal use and rising natural gas use. One of the most important drivers has been the sustained low cost of natural gas, which reached the lowest level in decades last year. In 2020, the price of natural gas delivered to electric generators averaged $2.39/MMBtu. However, natural gas prices have been rising in recent months now that the economy is beginning to recover from the effects of the pandemic, but U.S. production of natural gas is growing at a slower pace. In April 2021, the most recent available history, the delivered natural gas price to electricity generators averaged $3.04/MMBtu. Expected natural gas costs remain relatively elevated through the forecast and delivered prices average $3.44/MMBtu in 2H21.

These expected changes in the costs of fuels used for generating power will likely reverse some of the recent trends in the use of coal and natural gas for electricity generation, at least temporarily. We forecast that the natural gas-fired share of total U.S. generation will decline from 39% in 2020 to 36% in both 2021 and 2022, which would be close to what the natural gas share was in 2019. The expected rise in natural gas costs make coal more economical for electricity generation. The forecast share of generation from coal-fired power plants rises from 20% last year to 24% in 2021 and 22% in 2022.

We forecast the share of generation from renewable sources will increase from 20% in 2020 to 21% in 2021 and to 23% in 2022. Most of this increase will come from new solar and wind generating capacity expansions in the electric power sector. The current drought in the West has restrained electricity generation by hydropower. U.S. hydropower generation contributes about 6.5% of total generation in the 2021 forecast, which would be the lowest share since 2015. In 2022, the forecast hydropower share rises to 6.8% but is still below the 7.5% share last year.

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. The declining share partly reflects retirements of nuclear capacity. In April, New York’s Indian Point nuclear power plant retired. Reactors at three other nuclear plants in the Midwest are scheduled to retire in either 2021 or 2022. The retirements are partly offset by two reactors at the Vogtle plant in Georgia that are scheduled to come online next year.

Renewable Capacity. We expect that generating capacity from renewable energy sources will continue to grow through the STEO forecast horizon. By the end of 2022, electric power sector total renewables capacity increases by 81 gigawatts (GW) from 2019. An additional 15 GW in all other sectors brings the total to 96 GW.

We forecast that in 2022 large-scale solar capacity growth will exceed wind growth for the first time. We forecast that 16 GW of solar photovoltaic (PV) generating capacity in the electric power sector will be added in 2021 and an additional 17 GW is forecast for 2022. We forecast small-scale solar PV capacity to increase by about 5 GW per year through the STEO forecast period. Residential PV accounts for most of this additional small-scale generating capacity for both 2021 and 2022. Solar capacity growth in the forecast reflects various state and federal policies that support renewable energy.

We forecast generating capacity from wind turbines in the electric power sector to grow by 17 GW in 2021 and by 6 GW in 2022. Because wind capacity is often added at the end of the calendar year, increases in wind 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 capacity 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 harbor (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 now reflected in this forecast. This extension caused capacity additions to move from 2020 to 2021 and the slowing wind growth in 2022.

Electricity Prices. Wholesale electricity prices throughout the country so far in 2021 have been higher than last year, reflecting the increased cost of natural gas for power generation. During 2Q21, wholesale prices ranged from $31 per megawatthour (MWh) in the Central region, which is 58% higher than 2Q20, to $52/MWh in the Northwest region, which is 256% higher than in 2020. Wholesale prices are likely to remain relatively volatile over the next few months. Forecast prices during 2H21 average from a low of $24/MWh in Texas to a high of $46/MWh in California.

We forecast the U.S. retail electricity price for the residential sector will average 13.6 cents/kWh in 2021, which is 2.8% higher than the average retail price in 2020. Forecast residential prices increase by an additional 1.8% in 2022.