Natural Gas Power Plants Begin Their Inevitable Decline

Gas-fired power plants have likely reached their peak share of the U.S. power mix. High prices and renewables are to blame.

Natural Gas Power Plants Begin Their Inevitable Decline© Provided by TheStreet

Put another "W" on the board for American renewable energy.

According to the U.S. Energy Information Administration, natural-gas-fired power plants are expected to provide 38% of the nation's electricity in 2022. Even as nearly a net 6,900 megawatts of capacity will be added this year, natural gas is expected to represent 36% of the power mix in 2023. 

Market forces will drive the decline.

Although power generators and electric utilities are eager to retire coal-fired power plants years ahead of schedule, low-cost renewables are now beginning to grab most of the vacated market share. 

Natural gas will continue to play an important role in the nation's electricity generation for the foreseeable future, but it's unlikely to match the record 40% market share it posted in 2020 or the record output this year.

In other words, natural gas has peaked in the American power sector – and there's no turning back.

Natural Gas Ate Coal...

The rapid rise of wind and solar is astonishing and historic. The precipitous decline of coal has been just as stunning.

The U.S. leaned on coal-fired power plants for 48.6% of its electricity in 2007. The EIA expects coal to contribute just 20% in 2022. A decline of that magnitude has never occurred in such a short time frame. 

The Inflation Reduction Act is likely to accelerate the pace of early retirements across the industry. By the middle of the next decade, the U.S. may not have a single coal-fired power plant operating.

The fall of coal was made possible by the shale revolution, which handed the nation an abundance of natural gas. The U.S. leaned on natural-gas-fired power plants for 21.6% of its electricity in 2007, and that should climb to 38% in 2022. 

Although the market share of 40% in 2020 was higher, the pandemic lowered total electricity consumption. That means total electricity generation will actually be higher in 2022, which could represent the all-time peak for natural gas.

Let's consider some numbers to put the first phase of the energy transition into perspective. From 2007 to 2021, the amount of electricity generated annually from:

Modern renewables certainly made decisions to retire coal-fired plants easier, but it wouldn't have been possible without natural gas. That's now starting to change.

...And Renewables Are Poised to Eat Natural Gas

The American power sector has reached an inflection point where onshore wind and utility-scale solar can begin grabbing large chunks of market share each year.

The ecosystem has matured to provide ample financing, the technology has improved to increase efficiency and lower costs, and the Inflation Reduction Act provides long-term certainty for tax credits to smooth out planning decisions for much of the next decade.

Now let's consider a few numbers to put the next phase of the energy transition into perspective. Wind and solar:

The EIA expects all renewable-energy sources to generate 22% of the nation's electricity in 2022 and 24% in 2023. That trend should continue for the foreseeable future, thanks to record additions of onshore wind and solar, although project permitting and transmission could hinder this prospect.

The secret to making natural-gas-fired power plants less economical or simply less needed is to build more small-scale -- rooftop -- and utility-scale solar. 

Electricity consumption in the U.S. peaks in the summer due to demand from power-hungry air conditioners. Solar panels don't generate much electricity in the winter months, but they just so happen to peak during the summer on a seasonal basis and the middle of the day on a daily basis. Both line up with overall demand peaks.

The seasonal value of solar is already playing out in an unlikely place: New England. Not exactly known for sunshine, New England added roughly 3,800 megawatts of small-scale solar installations from 2016 through May 2022. 

That tiny change reduced peak daily demand from regional grids by 1,000 megawatts during morning and evening peaks, and by 2,000 megawatts during main daylight hours.

That can save customers significant costs, especially considering marginal demand in deregulated New England is met with the most expensive sources of electricity available – usually costly so-called peaker plants powered by natural gas.

Although solar isn't quite as valuable during the early spring and late winter months, that's when onshore wind production peaks. Many of the most populous regions can rely on complementary buildouts of wind and solar to smooth out generation.

Meanwhile, the emergence of offshore wind power by the end of this decade could provide copious amounts of electricity nearly year-round, likely rivaling output from natural-gas fired power plants, near major population centers on the nation's coasts.

Despite the doom and gloom about climate change and the arguments to move even faster, it's important to acknowledge the historic changes underway in the American power sector. 

The historic fall of coal and the rapid rise of wind and solar have driven significant progress in the industry's carbon emissions. With natural-gas-fired power plants now beginning their inevitable decline, the carbon footprint of the nation's power sector should continue to improve.