On August 16, 2022, the United States passed the largest investment legislation supporting renewable energy in the country’s history. The Inflation Reduction Act (IRA) law includes roughly $370 billion in support of the energy transition. This big investment in carbon-free energy raises the most perplexing dilemma facing grid planners: How does one solve the intermittency of renewable resources while continuing to grow wind and solar capacity? The answer is wrapped up in the buildout of new transmission infrastructure, energy storage, and the expansion of new grid-enabling technologies. At the same time, the continued development of wind, solar, and battery storage needs to come at an affordable price.
Higher everything in 2022
In 2022, electricity demand, average rates, and natural gas consumption for power generation set all-time records, despite the average cost of natural gas at times running three times higher than the prior year. Renewable energy also grew to record output while power supplied by coal declined. The rising cost of energy has customers paying closer attention to their utility bills; however, there is good news in 2023 already. The mild winter has reduced demand for natural gas and at least temporarily brought prices down to pre-2022 levels.
Electricity production growing
During 2022, the electricity industry continued to rebound from the depth of the 2020 pandemic. Based on preliminary data, electricity production for 2022 will be about 2.5% higher than in 2021 when power generation increased by 3%. Natural gas fueled a record 1,673 million megawatt hours (MWh) — up 6% — while wind (429 million MWh, 13.3%), solar (143 million MWh, 24.4%), and hydro (264 million MWh, 5.1%) all increased. However, most of what natural gas gained was relinquished by coal, declining output by approximately 9%.
Natural gas accounted for nearly 40% of U.S. electricity production in 2022, while renewables (21.7%), coal (19.4%), nuclear (18.4%), and other fossil fuels (0.8%) accounted for the rest. Renewables, including hydro, wind, solar, geothermal, and biomass combined, topped both nuclear and coal in the fuel mix. Given the continued closure of aging and uneconomic coal and nuclear power plants, that trend is expected to continue. As a result, renewables will maintain the second largest position in the fuel mix for years.
60:40 and holding
Despite the tremendous buildout of wind and solar capacity in recent years, the ratio of fossil fuel to zero-carbon electricity production has continued to remain approximately 60:40. As noted above, during 2022, natural gas (39.7%), coal (19.4%), and other fossil fuels (0.8%) accounted for about 60% of the country’s total power production. On the other hand, wind (10.2%), hydro (6.3%), solar (3.4%), nuclear (18.4%), and other renewable energy (1.8%) accounted for roughly 40% of total production. This ratio has been holding steady for some time, driven mostly by the continued need for dispatchable resources, especially during extreme weather events and peak demand times of the day.
Grid investment expected to remain high in 2023
Driven primarily by the post-pandemic recovery over the past two years, transmission, distribution, and generation investment continue to surge. In September 2022, the Edison Electric Institute (EEI) projected capital expenditures (CapEx) by investor-owned utilities would top $154.7 billion during 2022—up a robust 15.4% from the $134.1 billion reached in 2021. The institute expects CapEx to run between $155 and $160 billion in 2023 and 2024. Investment in distribution technology, including everything from substation rebuilds to smart grid investments, is expected to lead the way, accounting for one-third (33%) of all expenditures, with investment in generation (24%), transmission (20%), and gas-related investments (14%) accounting for most of the rest.
Looking ahead in 2023: electricity demand on the move
Electricity demand likely will grow despite higher electricity rates as the electrification of transportation and infrastructure continues to increase. According to statistics compiled by the International Energy Agency (IEA), 10 million electric vehicles (EVs) were sold in 2022—about 13% of all auto sales. Today there are more than 25 million EVs on the road. As recently as 2010, there were virtually none. According to a new study by BloombergNEF, global low-carbon technology investment was about $1.1 trillion in 2022, a new record. Adding to those statistics, about 30% of the global energy supply is produced by renewable resources today; that figure was less than 20% a decade ago.
Natural gas demand will grow as more coal plants shut down, and the need for dispatchable energy supporting renewable projects gains traction. In addition, the number of solar and battery storage projects will grow, driven by attractive incentives built into the recently enacted IRA legislation. According to Hitachi Energy’s Velocity Suite research team, more than 20 gigawatts (GW) of utility-scale solar capacity is currently under construction and expected online in 2023. There are more than 250 battery storage projects (about 20 GW) in development, with nearly 140 projects (6.4 GW) currently under construction. Along with continued investment in clean energy technology, the development and buildout of transmission and other grid technologies will be a central focus in 2023.
The big challenge for 2023
Soaring prices for energy supply, materials, and critical minerals that support clean technology will weigh heavily on most projects. How much is too much? The greatest challenge to the energy transition is keeping electricity affordable and reliable. The best way to achieve that goal is through innovation and better engineering.
The following charts and captions highlight some of the most interesting industry trends that will make more news in 2023. The selected charts are taken from a lengthy story with 15 charts to be published later this week.
America’s great fuel convergence begins to diverge
U.S. electricity generation by fuel source, TWh
After converging in 2020, electricity production by wind, solar and other renewable energy resources have surpassed both nuclear and coal in the U.S. fuel mix. Natural gas supplied approximately 40% of U.S. electricity production in 2022, followed by renewables, including wind, solar, hydro, geothermal, and biomass resources (21.7%), coal (19.4%), and nuclear (18.4%). The strong natural gas power production performance occurred despite much higher gas prices. Plant closures were most responsible for the decline in coal (-9% year-over-year) electricity production.
Natural gas, wind, and solar continue to dominate new capacity
U.S. capacity additions by fuel, 2011-2022p, megawatts (MW)
Over the past decade, natural gas, wind, and solar (GWS) have dominated new capacity construction across the United States. Since 2013, the three power resources have accounted for more than 96.5% of all capacity additions (268 GW), with a remarkable 99% (154.9 GW) during the last five years alone. Apart from the addition of only two nuclear reactors currently under construction in the U.S., most expansion projects during the next decade will continue to be GWS, with storage a part of virtually all solar projects. According to data compiled by Hitachi Energy’s Velocity Suite research team, about 25 GW of new capacity was added in 2022 and an additional 57 GW is currently under construction or testing with commercial online goals over the next two years. Nearly 96% is GWS capacity.
May heatwave illustrates the balance of resources needed for reliability
Hourly electricity production by fuel, May 1 thru May 22, 2022, MWh
Electric Reliability Council of Texas (ERCOT)
Southwest Power Pool (SPP)
The heatwave that persisted across the North Central states and Texas in May 2022 illustrates the complex and shifting balance of resources necessary to meet electric demand during extreme weather events. The two charts display hourly electricity production by fuel from May 1 through May 21, 2022, for ERCOT and SPP. Both markets have a tremendous wind footprint. In ERCOT, natural gas fills the gaps when the wind wanes and solar is unavailable. The balance of resources is what makes the grid reliable during high-demand hours. In SPP, the combination of coal and natural gas resources balances the relatively large wind contribution. The addition of energy storage technologies will help alleviate the need for dispatchable peaking facilities as more and more coal and older natural gas power plants retire. Maintaining the reliable flow of electricity depends on the balance of resources, including a healthy mix of dispatchable and variable energy.
Grid infrastructure, the great enabler of renewable energy
U.S. electric utility T&D in-service additions, $
According to data compiled by Hitachi Energy’s Velocity Suite research team, since 2012, the cumulative transmission and distribution (T&D) annual plant in-service additions by the nation’s major utilities have been a robust $482.3 billion. Electric plant in-service additions include the original cost of new infrastructure added during the year, making it a great indicator of company investment in the electric grid. In addition, the average annual growth rate (AAGR) has been a robust 7.5% since 2012. In 2022, major utilities across the U.S. spent $64.5 billion on T&D projects.
Coal power in America continues to decline
U.S. coal capacity additions and retirements by year, GW
For the better part of three decades, from 1985 through 2014, net operating coal capacity in the United States exceeded 300 GW. Today, coal operating capacity is below 220 GW, its lowest level since 1976. By 2030, based on plants currently scheduled for retirement, net operating capacity is expected to dip below 150 GW for the first time in 60 years. Economics, competitively priced natural gas, and a surge in cost-competitive renewables and energy storage projects are driving the decline.