NREL sees natural gas, renewables gaining US market share

Portland, Maine (Platts)--17 Nov 2016 1017 pm EST/317 GMT

Natural gas-fired and renewable resources are expected to enjoy growing generation mix shares over the next three decades, driven by low-cost gas and renewable energy cost declines and performance improvements, according to analysis by the US Department of Energy's National Renewable Energy Laboratory.

The report released Wednesday -- the 2016 Standard Scenarios: A US Electricity Sector Outlook -- aims to identify a range of possible futures for the US electricity sector.

The emergence of low-cost gas has driven major changes in the power sector, with the annual average capacity factor for combined-cycle generators jumping from 35% in 2005 to over 56% in 2015 at the expense of coal-fired generation, the report said.

NREL expects gas prices to remain generally low. "Despite increases in commodity prices, including natural gas prices, in mid-2016, the outlook for continued low-priced natural gas looks firm, given the currently high levels of underground storage and continued declines in the cost to produce natural gas," the report said.

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Before 2020, NREL expects gas-fired generation to fall somewhat on rising prices, but to still climb by 1% to 3% a year on average under all scenarios that were studied from 2020 through 2050.


NREL expects renewable penetration, including hydroelectric capacity, to climb from 14% of all US generation in 2015 to about 24% in 2020 and 44% in 2050 under a "mid-case" scenario.

"Given anticipated reductions in renewable energy technology costs and the extension of renewable generation tax credits, strong near-term growth in renewable generation is projected to continue," the report said.

However, growth in renewable generation is projected to slow after the federal production tax credit expires and the value of the investment tax credit falls in the early 2020s, the report said.

In the longer term, NREL expects renewable generation's market share to increase, even under low-cost gas conditions.

The increased penetration of variable renewable resources such as wind and solar may lead to system changes, according to the report.

"Although system changes would need to be implemented to accommodate this higher level of renewable energy, the long-term growth rate does provide some time to continue to increase system flexibility through increased cooperation, transmission expansion, demand response, storage, and other enabling technologies and institutional solutions," the report said.


The combination of strong growth in gas-fired and renewables output may push other generators out of the market, according to the report.

"And, if natural gas prices continue to be low, the combination of low variable costs from gas-fired generators with significant amounts of renewable energy that have little or no variable costs will make it more challenging for traditional baseload generators to recover their costs under existing market rules of restructured electricity markets," the report said.

The market pressures, coupled with the fact that many baseload plants have been running for many years and may need major retrofits or upgrades, creates an environment where existing baseload generators might retire more quickly than otherwise expected, the report said.

NREL cautioned that there is significant uncertainty around gas in power sector planning.

"Liquefied natural gas exports, rapidly growing pipeline exports to Mexico, potential [hydraulic fracturing] or methane leakage regulations, and uncertain oil markets create an environment where making definitive projections for natural gas usage and prices is difficult," the report said.

Meanwhile, rooftop solar had grown to 2,448 MW by last year, up from 468 MW in 2010, according to the report. The growth is likely to continue, but will depend heavily on utility rate structures, photovoltaic costs and policy choices, the report said.

--Ethan Howland,
--Edited by Keiron Greenhalgh,

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