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July 16, 2014

EIA projects modest needs for new electric generation capacity

graph of electric generating capacity additions, as explained in the article text
Source: U.S. Energy Information Administration, Form EIA-860, and Annual Energy Outlook 2014

The Annual Energy Outlook 2014 (AEO2014) Reference case projects 351 gigawatts (GW) of new electric generating additions between 2013 and 2040, in both the electric power sector and end-use sectors. Projected future capacity additions are well below the average annual levels observed in recent history, and natural gas is the primary fuel source of the projected added capacity. Near-term additions (through 2016) average 16 GW per year, followed by additions of less than 9 GW per year through 2022, as the existing generating fleet will be sufficient to meet expected demand growth in most regions. From 2025 to 2040, annual additions increase to an average 14 GW per year, but remain below recent levels.

A boom in construction of new natural gas-fired plants began in 2000, largely driven by independent power producers in response to deregulation in the electric power sector. U.S. electric generating capacity additions averaged 35 GW annually from 2000 through 2005. Almost all of the capacity added during those years was natural gas-fired and about two-thirds uses efficient combined-cycle technology. From 2006 through 2012, annual average capacity additions dropped to 19 GW, with 42% of the additions representing renewable technologies and 45% representing natural gas-fired technologies. The renewable additions were primarily wind plants built to take advantage of federal tax incentives and to help meet state renewable portfolio standards. The high levels of recent capacity additions, combined with relatively low electricity demand, have resulted in surplus capacity relative to required reserve margins for many regions of the country.

In the AEO2014 Reference case, natural gas-fired plants account for 73% of capacity additions (255 GW) from 2013 to 2040, compared with 24% for renewables, 3% for nuclear, and 1% for coal. Of the 83 GW of renewable capacity additions, 39 GW are solar photovoltaic (PV) systems (60% of which are rooftop installations) and 28 GW are wind (60% of which occur by 2015 to take advantage of production tax credits), as federal tax incentives, state energy programs, and rising fossil fuel prices increase the competitiveness of renewable electricity technologies. Nuclear additions total about 10 GW, including 6 GW of plants currently under construction and 4 GW projected after 2027. New coal plants total less than 3 GW, with more than 80% of that total currently under construction, as federal and state environmental regulations and uncertainty about future limits on greenhouse gas emissions reduce the attractiveness of coal-fired plants.

Different assumptions for economic growth rates, fuel resources, demand expectations, and tax policies can have a considerable effect on projected capacity additions. Given the uncertainty surrounding these conditions, the AEO2014 examines a variety of cases with different assumptions, including:

  • The Low and High Economic Growth cases, which project total capacity additions from 2013 through 2040 of 263 GW and 482 GW, respectively
  • The Low Oil and Gas Resource case, in which natural gas prices are higher than in the Reference case, and new natural gas-fired capacity added from 2013 to 2040 totals 181 GW
  • The High Oil and Gas Resource case, in which delivered natural gas prices are lower than in the Reference case, resulting in 323 GW of new natural gas-fired capacity additions from 2013 to 2040
  • The Low Electricity Demand Growth case, in which total electricity demand in 2040 is 17% below the Reference case, and total electricity capacity additions are half (174 GW) that of the Reference case
  • The No Sunset case, which assumes the extension of existing federal energy policies such as the production and investment tax credits for certain renewable electricity generation technologies, and results in 265 GW of new renewable capacity additions from 2013 to 2040

The AEO2014 Market Trends chapter contains additional analysis on this topic in general. An Issues in Focus article and a 2014 EIA Conference session addressed the Low Electricity Demand Growth case in particular.

Principal contributors: Jeffrey Jones, Laura Martin