Home Commodities Commodities 2024: Amid rising renewable capacity, downside risks seen for gas generation

Commodities 2024: Amid rising renewable capacity, downside risks seen for gas generation



US wind capacity up 65%, solar 200% since 2018

Coal retirements unlikely to benefit gas in 2024

Unknown factors shape future for gas generation

Growing wind, solar and battery capacity on the US power grid is catching up quickly with gas-fired generation that may already have peaked in 2023 ahead of a gradual downturn in 2024 and beyond. This year is seen as a potential tipping point for renewables.

Not registered?

Receive daily email alerts, subscriber notes & personalize your experience.

Register Now

Over the past five years, operating renewable capacity on the US power grid has surged.

Wind power, which accounts for an overwhelming share of renewable generation, has grown by nearly 65% since 2018. Solar power is catching up quickly, with operating photovoltaic capacity in the US growing by almost 200% during the same period. While battery power still accounts for just a fraction of total electric generation, operating capacity on the grid has grown exponentially in the past five years.

In 2024, renewables are poised to continue growing, with an expected 11% gain in wind generation and 28% increase in solar, data compiled by S&P Global Commodity Insights showed.

According to some analysts, 2024 could be a tipping point for renewables as cumulative capacity additions to the US power grid begin to weigh on gas-fired generation. In 2022, wind, solar and other renewables already accounted for some 21% of total US power generation, which was over half the total from gas, estimated at nearly 40%, according to data from the US Energy Information Administration.

Gas-fired power

Since at least the mid-2010s, operating gas-fired power capacity in the US has continued growing, defying the gravity of a major push by power generators to integrate renewables.

In the past decade, gas-fired power burn has grown on an annual basis in every year except 2017 and 2021. In 2023, US gas-fired power demand surged to never-before-see highs that topped 50 Bcf/d on at least seven of the hottest days this past summer. On a calendar year basis, US power burn grew by over 2 Bcf/d, or about 6%, from 2022 to 2023, S&P Global data showed.

In some ways, natural gas has managed to benefit from the shift toward renewables in recent years, even as an increasing number of combined cycle plants are transitioned to peaking — dispatched only during periods of high demand — or when wind and solar go dark. In 2024, though, the continued growth in natural gas could be losing steam as major renewable capacity additions in the US mount.

“At the aggregate level … the numbers add up – you may not need any additional gas [in 2024],” said Gurcan Gulen, senior fellow at the United States Association for Energy Economics, pointing to the possibility that cumulative wind and solar additions could be enough to finally halt the steady growth in gas-fired power demand seen over the past decade.

“You have to look at grid-specific locations, though,” he said.

Thanks to poor interactivity across the US power grid, natural gas could make isolated gains within individual independent system operator territories, according to Gulen. In a recent interview, he warned about the possibility for delays or even cancellations of planned wind, solar and battery capacity in 2024 and the added risk that curtailments of newly installed capacity could result from high transmission costs.

Coal retirements

Over the past 10 years, coal retirements have helped to catapult gas to its status as the single largest source of US power generation. In 2024, retirements of US coal-fired power are scheduled to continue and perhaps even exceed the volume officially slated for closure – thanks to added economic pressure on those facilities from low gas prices, which are largely expected to persist during 2024.

According to the North American Power Market Outlook published by S&P Global, coal plant retirements are expected to nearly double from 2023 to 2024 and amount to the largest annual volume of retiring capacity dating back to 2015. Although such a large volume of coal retirements raises questions about whether and how much of that baseload power demand might be absorbed by gas, some analysts believe most of the retiring coal capacity will come from plants that are already operating at low capacity factors.

“You can see that coal is being retired [in our forecast], but the generation isn’t [expected] to change dramatically — the remaining plants are operating more, so the average annual generation from coal isn’t changing too much,” said Patrick Luckow, associate director of research and analysis at S&P Global.

Unknown risks

In 2024 and beyond, unknown factors like infrastructure buildout, regulatory policies and even weather could have an outsized impact on the potential retreat or growth of US gas-fired power generation.

In ERCOT, for example, one of the biggest challenges for wind and solar developers will be the siting and construction of new transmission lines needed to bring renewable power from West Texas where It’s largely generated, to the demand centers in Houston, Dallas, Austin and other Texas cities.

Another difficult-to-predict factor is nuclear power. According to Gulen, various US nuclear power plant are quickly approaching the end of their 60-year operating license. Although the life of those plants could be extended to 80 years, it’s also possible that they’re simply retired.

Assuming the latter is the case, “it’s possible that by the 2030s, we could actually start to see gas demand increasing for power generation,” as baseload nuclear is replaced by gas, he said.

Finally, weather is yet another unknow factor that could affect the fate of gas-fired power demand in any given year. Last summer and in summer 2022 abnormally hot US weather helped to lift power burn demand to successive record highs. According to some long-range seasonal forecasts, the strong influence of El Nino on US weather, which was apparent in second-half 2023, could weaken by mid-2024, potentially lowering the possibility for the kind of extraordinary heat waves – and cooling demand records – seen in Texas and the Southeast this past summer.

Source link


Please enter your comment!
Please enter your name here