A Guest post by Islandboy

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The EIA released the latest edition of their Electric Power Monthly on October 24th, with data for August 2017. The table above shows the percentage contribution to two decimal places for the last two months and the year to date.According to the Electricity Monthly Update at the EIA web site, “Net generation in the U.S. decreased by 7.2% compared to the previous August, mainly due to the cooler temperatures experienced in August 2017 compared to the previous year.” Nuclear generated slightly more than it did in July, resulting in its percentage contribution increasing to 19.01% from 17.83% in July. A decrease in the absolute contribution from Solar from 7862 to 7632 GWh, translated to the percentage contribution actually increasing slightly to 2.09%, up from 2.04% in July. It is worthy of note that the percentage contribution from solar was below 2% in January and February only and appears to be on target to end the year with a contribution of slightly more than 2%, in line with the increase in capacity seen in 2016. The gap between the contribution from All Renewables and Nuclear continued to widen as All Renewables fell to 12.32% as opposed to Nuclear’s 19.01% contribution. The amount of electricity generated by Wind declined resulting in the percentage contribution declining by 0.5%. The contribution from Hydro continued to decline both in absolute and percentage terms. The combined contribution from Wind and Solar declined slightly to 5.53% from 5.97% in July and the contribution from Non-Hydro Renewables also fell slightly to 6.69% from 7.05%. The contribution of zero emission and carbon neutral sources, that is, nuclear, hydro, wind, solar, geothermal, landfill gas and other biomass fell marginally from 31.44% to 31.33%.

The graph below helps to illustrate how the changes in absolute production affect the percentage contribution from the various sources.

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The graph below shows the total monthly generation at utility scale facilities by year versus the contribution from solar. The left hand scale is for the total generation, while the right hand scale is for solar output and has been deliberately set to exaggerate the solar output as a means of assessing its potential to make a meaningful contribution to the midsummer peak. This August solar continued to account for about eight percent of the additional peak mid summer demand as it did in July, that is, eight percent of the approximately 100,000 GWh difference between the spring/autumn lows and the mid summer peak.

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The graph below shows the monthly capacity additions for 2017 to date. In July 28 percent of capacity additions were Natural Gas. Solar added 34.4 percent and and Hydro contributed 30.4 percent of new capacity. Wood Waste Biomass made a contribution of 3 percent, Landfill gas made up 0.19 percent and Petroleum Liquids made up 0.47 percent. Batteries made up 6.56 percent. In August the total capacity added was 485 MW the lowest monthly figure for the year so far.

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There have been suggestions that, the continuing growth in demand for natural gas in the electricity generating sector, based on historically low prices of the fuel, is not sustainable. Indeed the current low prices should provide an incentive for oil and gas producers to desist from increasing production so it can be expected that supplies may tighten and prices may continue to rise in the next twelve to eighteen months. This reasoning has led the EIA to forecast increasing electricity generation from coal and declining generation from natural gas. From the Forecast Highlights of the EIA’s latest Short-Term Energy Outlook:

Electricity, coal, renewables, and emissions

EIA expects the share of U.S. total utility-scale electricity generation from natural gas to fall from 34% in 2016 to about 31% in 2017 as a result of higher natural gas prices and increased electricity generation from renewables and coal. In 2018, natural gas’s generation share is expected to rise to 32%. Coal’s forecast generation share rises from 30% last year to 31% in 2017 and is expected to stay at that level in 2018. “

However when one examines the natural gas Henry Hub spot prices from January 2006 to the present, it sheds some doubt on that line of reasoning.

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If the capacity changes since 2010 discussed in the previous edition of this report are taken into consideration, it would appear that, the owners of the new natural gas fired capacity were confident that these plants would be competitive within the price range that has existed since February 2009, when the spot price dipped below $4.90 for the first time since November 2003. These plants are not built on the spur of the moment and the owners would presumably have done their due diligence and decided well in advance of construction, that they could compete at prevailing gas prices, which have averaged $3.48 per million BTU between February 2009 and September 2017.

From the web site of the magazine POWER

The Future Looks Bright for Natural Gas-Fired Power Generation but Price Volatility Is a Wild Card

“Expanded natural gas production from shale formations is one of the main reasons that gas-fired generation has developed a competitive advantage. As more gas has been produced, gas prices have decreased and remained low in recent years. It’s also generally recognized that less manpower is required to operate a gas-fired facility compared to a coal power plant. Fuel and labor costs are often the two largest expenses a power plant has. Cheap fuel and less labor means cheaper power.

Gas-fired power plants have other cost advantages too, especially in the age of strict environmental regulations. Most coal-fired stations have had to retrofit units with expensive air quality control systems, increasing capital and operating costs”

The article goes on to describe the challenges likely to crop up with the price of fuel to these plants, including four major drivers for changing prices: “changes in supply from shale gas development, the potential growth in liquefied natural gas shipments, planned Gulf Coast chemical plant investments, and swelling exports to Mexico”. It remains to be seen how producers will react if and when gas prices increase significantly but, many readers of this web site would probably agree that their response will probably include increasing the supply, resulting in a re-balancing of the supply demand situation.

Another challenge that stands in the way of increasing electricity from coal is the recent growth in wind and solar. From the web site of the American Wind Energy Association:

Second quarter 2017: Top 5 story lines

1. The U.S. wind industry reported 25,819 megawatts (MW) of wind capacity under construction or in advanced development during the second quarter, a 41 percent increase over this time last year. That includes a combined 3,841 MW in new announcements. And nearly 80 percent of that activity is found in the Midwest, Texas and the Mountain West, as our richest wind resources draw even more investment and jobs to communities in rural America. Considering the U.S. currently has a total of more than 84,000 MW of installed capacity (enough to power 25 million homes), a development pipeline nearing 26,000 MW is a big deal.

This is an increases in capacity in excess of 30%. Electricity from wind already costs less than electricity generated by coal so, if the annual contribution from wind goes up by more than one percent, it could just as well displace generation from coal as it could natural gas.

From the web site of the Solar Energy Industries Association

Solar Market Insight Report 2017 Q2

GTM Research forecasts that 12.6 GWdc of new PV installations will come on-line in 2017, down 16% from a record-breaking 2016.

This 12 GW increase in capacity represents an increase in capacity of more than 30% following a 60% increase in 2016 and would take solar capacity in the US from 25.6 GW at the end of 2015 to over 52 GW at the end of 2017.

What is equally significant is that in May of this year (2017), utilitydive.com among other sources reported that,

“Tucson Electric Power has signed a power purchase agreement for a solar-plus-storage system at ‘an all-in cost significantly less than $0.045/kWh over 20 years,’ according to a company official. Exact prices are confidential, but a release pegged the PPA for the solar portion of the project at below $0.03/kWh.”

This is a price that is competitive with coal and what is more, this low price is locked in for 20 years, a guarantee that is difficult to match for a coal fired plant. When the new low prices for electricity are coupled with the ability to deploy solar PV fairly rapidly, it is more likely that many utilities, especially in the south, will opt for more solar PV than a return to coal if natural gas prices exceed the range at which utilities can operate gas plants profitably, without significantly increasing prices.

Low priced renewables are putting a price cap on the price of electricity. Any attempts to exceed this cap will likely result in increased deployments of renewables, wind and solar in particular.

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