American power industry in transition: 16 trends to look for in 2022

Driven by favorable regulations, tax credits, lower technology costs, and corporate goals, the U.S. power grid has undergone unprecedented change over the past several years. As a result, wind, solar, and natural gas have dominated power generation investment. With this backdrop, solving the intermittency problem created by adding more and more variable wind and solar resources may be the most important hurdle necessary to achieve future carbon reduction goals.

In 2021, the electric industry began to rebound from the pandemic. Based on the most current reporting, over the 12 months ending in October 2021, electricity production was running about 2.2% ahead of the previous 12-month period. Solar (up 28.9%) and wind (up 13.4%) continued to grow, while at the same time, driven by higher prices (up 93.7%), natural gas power declined by 4.4%. With natural gas, hydro, and nuclear output down, coal made a significant surge upward. In 2020, for the first time in over one hundred and thirty years, electricity production by renewable energy surpassed coal in America. But in 2021, driven by higher natural gas prices and the need for dispatchable energy during high load periods, coal’s share of nationwide electricity production rebounded significantly – increasing by about 18% year-on-year. But even with the bounce back, continued coal plant closures and reduced use at operating plants are expected to dampen coal’s share of the electricity fuel mix into the future.

The big challenge for 2022 – solving intermittency

Leading the challenges of 2022 is solving the variability and intermittency of wind and solar power. Today, nearly all solar projects are bid into capacity markets with an energy storage component. Additionally, new natural gas projects are fast-starting, extremely efficient, and are now being built hydrogen-ready. The new gas technologies incorporate dual-fuel capable turbines to burn either natural gas or potentially carbon-free hydrogen, or a combination of both. Solving the intermittency problem requires markets to consider how to compensate flexible resources like energy storage and natural gas, but also, markets need to provide clear guidance on how to pay for new long-haul transmission and needed grid upgrades – all this while at the same time keeping electricity flow reliable and affordable. 

There is no ‘transition’ without ‘transmission’ 

Earlier this fall, Philip Duguay of Réseau Canada Grid, offered this quote from a friend, “There is no ‘transition’ without ‘transmission.’ So true, given that transmission has been the great enabler of renewable energy across America. The rapid growth in wind and utility-scale solar could not have been possible if it were not for the tremendous expanse of high-voltage transmission lines that make up the North American power grid. Along with the growth in energy storage technology, transmission expansion projects dominated news cycles in 2021. That is expected to continue over the next several years as more and more renewables are added to the power grid.

Grid investment expected to be higher again in 2021

Driven most by the post-pandemic recovery in 2021, transmission, distribution, and generation investment continued to surge. In June 2021, the Edison Electric Institute (EEI) projected capital expenditures (CapEx) by investor-owned utilities would top $144.3 billion (bn) during the year – up a robust 8.7% from 2020. Though the institute expects a modest drop in 2022 and 2023, both years are expected to average a robust $138.7bn in CapEx – about 4.5% higher than the $132.7bn reached in 2020. Investment in distribution technology, including everything from substation rebuilds to smart grid investments, is expected to lead the way, accounting for 30% of all expenditures, with investment in generation (27%) and transmission (19%) accounting for most of the rest.

U.S. power industry on a carbon-cutting fast-track

Augmenting the continued focus on clean energy, the 2021 budget and COVID-19 relief bill contained significant extensions of renewable energy supporting federal tax credits. These credits include the Production Tax Credit (PTC) and the Investment Tax Credit (ITC), as well as provisions supporting energy storage, transmission, and support for the burgeoning offshore wind industry that has been estimated to be a $100 billion opportunity.

Sixteen for 2022

The following 16 charts and captions highlight the most interesting trends and happenings from 2021 – sure to make more news in 2022.

1. America’s great fuel convergence, diverges, but only slightly

U.S. electricity generation by fuel source, TWh

In 2020 electricity production by coal, renewables, and nuclear converged to account for approximately 20% (each) of United States electricity production. However, based on the 12 months of reporting, from November of 2020 through October of 2021, electricity production fueled by coal has grown to 22.4% of total fuel mix, while renewables, including hydro, wind, and solar, decreased to 19.7%, and nuclear to 19%. Meanwhile, natural gas shrunk from 40% in 2020 to roughly 38% in 2021. Higher gas prices were the primary driver behind the year-on-year growth in coal and the decline in natural gas power.

In 2021, for the first time in 27 years, electricity production from renewable energy resources, including hydro, wind, and solar, passed nuclear in annual output.

2. Natural gas, wind, and solar continue to dominate new capacity additions across America

U.S. capacity additions by fuel, 2011-2020, MW

Over the past decade, natural gas, wind, and solar (GWS) have dominated new capacity construction across the United States. Since 2011, the three power resources have accounted for more than 91.6% of all capacity additions (318 GW), with a remarkable 97.2% (183.2 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 natural gas, wind, and solar, with storage a part of virtually all solar projects. According to data compiled by Hitachi Energy’s Velocity Suite research team, roughly 33 GW of new capacity was added in 2021, and an additional 52.8 GW is currently under construction or testing with commercial online goals over the next two years – more than 95% is wind, solar and natural gas.

3. Decline in electricity production by natural gas driven by higher prices 

U.S. natural gas electricity production (MWh) and average annual fuel cost (current $/MWh)

The average cost of natural gas burned at power plants through the first nine months of 2021 was $33.94/MWh – about 70% higher than the $20.09/MWh reported for the same time in 2020. Driven by higher prices, natural gas electricity output declined by about 4.4% in 2021, while coal increased by 17.9%.

4. 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. By the end of 2022, it is expected to drop below 232 GW for the first time since 1976. By 2030, based on plants currently scheduled for retirement, net operating capacity is expected to dip below 160 GW for the first time in fifty years. The decline has been driven by economics, competitively priced natural gas, and a surge in cost-competitive renewables and energy storage projects.

5. 2005 to 2020, an American power industry odyssey

U.S. power industry CO2 emissions, tons

Driven by a combination of technological improvements and government policy, the power generation industry in the United States has gotten a lot cleaner fast. According to data compiled by the Hitachi ABB Power Grids’ Velocity Suite research team, since 2005, CO2 emissions from the nation’s power plants have declined by a phenomenal 37%. The primary drivers for the drop have been the steady decline in coal power production and the strong growth in natural gas and renewables. Except for a small upward trend in 2010, carbon emissions from the power generation sector have been steadily declining since peaking in 2007. The decline was driven most by coal plant closures and the expansion of natural gas as a utility fuel. Renewable energy, particularly wind, has also shown strong growth through the 15 years. Driving the future, the new Nationally Determined Contribution (NDC) sets an economy-wide target to reduce greenhouse gases (GHG) 50% to 52% below 2005 levels by 2030, and for the nation’s power industry, to achieve 100% carbon-free electricity by 2035.

6. American power companies make big strides shrinking carbon footprint

U.S. electric holding companies annual CO2 emissions in 2005 and 2020, tons

Driven by state and corporate goals, power generation companies have made great strides in reducing carbon emissions. With the continued closure of fossil capacity and steady and sustained growth in wind and solar power, generation companies will continue to shrink their carbon footprint in the future. The electric holding companies with the largest drop in CO2 output between 2005 and 2020 were American Electric Power (AEP) Co. (-121.3 million tons/-67.5%), Duke Energy (-86.3/-51.5%), NRG Energy (-83.3/-74.3%), Tennessee Valley Authority (-70.7/-66.5%) and rounding out the top five, FirstEnergy (-68.7/-71.9%).

7. Wind and Solar’s power contribution marches on

U.S. wind and solar electricity production (MWh) and percentage of total U.S. production

Based on preliminary statistics for 2021, wind and solar (480 million MWh) accounted for about 11.7% of total U.S. electricity production – that volume is up 12.3% from 2020. Looking at the past 15 years, wind and solar’s contribution increased from providing less than 1% of the nation’s fuel mix to nearly 12% today. The combined total of wind and solar represents 31.7% of all carbon-free power generated in the U.S. in 2021, second only to nuclear 51.4%, and well ahead of hydroelectric power’s contribution of 16.9%. The production from carbon-free power resources (1,519 million MWh) last year represented about 36.7% of total U.S. power output (4,110 million MWh).

8. America’s first carbon-free renewable energy resource – hydropower

U.S. hydroelectricity production, MWh

Often forgotten in the discussion of carbon-free power resources, America’s hydroelectric power plants have been consistent power producers for over fifty years. Since 1970, the country’s hydroelectric dams have produced more than 14.4 trillion MWh with an average annual output of 277 million MWh, which is an astounding statistic considering there has been little hydropower development during the past 30 years. Preliminary estimates for 2021 have hydro contributing about 255 million MWh to America’s fuel mix.  

Hydro can be a large carbon-free power contributor with the right weather conditions. For example, in 1997, driven by widespread high levels of winter snowfall and precipitation, hydro produced a record 356.4 million MWh, which amounted to roughly 10.2% of total electricity generation across the country. To put that in perspective, consider that in 2020, wind generated about 332 million MWh – about 8.3% of the total U.S. power supply.

9. A picture worth a thousand words – California’s big new batteries

California ISO daily battery net energy by the hour

California’s grid batteries make 2021 splash. What a difference a year makes. According to California ISO (CAISO) data compiled by the Hitachi ABB Power Grids’ Velocity Suite research team, utility-scale battery storage systems performed well in 2021. In July 2020, the charge and discharge data from the state’s utility-scale batteries was barely a heartbeat just one year before. Flash forward to July 2021, and the curve derived from average hourly net energy shows a dramatically different story, with most net charging occurring predominately between 7:00 AM and 4:00 PM PST – about the same time solar is ramped up across the market. Net discharging occurs later, during the evening peak, from around 6:00 PM PST through the remainder of the day. On July 27, 2021, during the two hours, between 7:00 PM and 9:00 PM, the average hourly discharge reached 1,022 MW. The average discharge for all days of the month during those two high-load hours was 645 MW. These numbers are sure to continue upward as the year unwinds and several projects currently under construction enter service.

Solving renewable energy’s greatest hurdle, intermittency, will take a large amount of storage capacity – both short-duration (hours) and long-duration (days).

10. Grid infrastructure, the great enabler of renewable energy

U.S. electric utility T&D in-service additions, $

According to data compiled by the Hitachi ABB Power Grids’ Velocity Suite research team, since 2010, the cumulative transmission and distribution (T&D) annual plant in-service additions by the nation’s major utilities have been a robust $445.8 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.

The cumulative increase in wind and solar capacity was about 142 gigawatts (GW) during the same period. Since 2010, the average annual growth rate (AAGR) in T&D investment has been a robust 9.2%, while wind and solar capacity has grown at an AAGR clip of 25.5%.

11. America’s largest electric holding companies spending more on T&D

Top 10 U.S. investor-owned utility holding companies T&D in-service additions by year, 2011-2020, $bn

The top-10 investor-owned utility (IOU) holding companies reported a record $239.4 billion of T&D in-service additions over the past ten years – that’s 53.7% of the $445.8bn reported by all holding companies. The average annual growth rate (AAGR) in T&D for this group is 9.3% during the period.

Growth in overall spending on new T&D infrastructure is being driven by several factors, including replacing aging infrastructure, the need for new transmission, and new distribution grid technology – all to enable the continued growth in renewables and clean energy technologies across America.

12. February 2021 winter cold snap, unlike any other

ERCOT, MISO, and SPP combined hourly electricity production February 2021, MWh

Looking at the three markets combined, coal and natural gas dominated the fuel mix. During the month, fossil fuels produced 68.4% – 69.2 million MWh. When fossil’s contribution is combined with nuclear, the three organized markets derived 80.4% (81.4 million MWh) of total electricity production from the three resources. During the most extreme 13 weather days (Feb 7-19), fossil fuels accounted for 77.6% of total power output. Combined with nuclear, the three resources accounted for an astounding 88.7% of the total electricity production. The only other significant energy contribution was from wind farms spread across the three-market footprint. Wind provided 9.1% of the fuel mix during the 13-day cold snap.

13. What is the current makeup of operating capacity across markets today?

U.S. operating capacity (GW) by market region by fuel-mix percentage

The seven organized markets vary in terms of operating capacity by fuel. For example, utility-scale solar represents more than 21.1% of all operating capacity in CAISO, while SPP (27.5%), ERCOT (25.1%), and MISO (13.5%) have built large wind footprints in recent years. ERCOT is home to the largest number of wind turbines with more than 32 GW of installed capacity.

Across all markets, the combination of natural gas combined-cycle and gas peaking capacity dominates, particularly in NYISO (56.5%), ERCOT (52.4%), and ISO-NE (49.6%). The PJM is host to the largest fleet of nuclear power plants, with 15.9% of the system’s capacity coming from nuclear. The non-organized markets (Non-OMs) across the country are host to the most diverse fuel mix and the largest footprint overall with natural gas (174.7 GW), coal (72.8 GW), hydro (59.7 GW), and wind and solar combined (46.9 GW) leading the way. The Non-OM is made up of utilities and generation companies spread mostly across the western and southeastern U.S., where organized markets are yet to form.

14. How have the markets produced electricity over the past two decades since the advent of the ISO/RTO model?

U.S. electricity production (MWh) by market, by decade 2001-2020

Over the past two decades, most markets have experienced an increase in the production of electricity from natural gas, while coal has been in decline. Power production by wind and solar was hardly noticeable in the 2001-2010 period, but with recent additions has begun to contribute significantly across all regions. Comparing the two decades, coal has decreased by 32.8%, while natural gas production has increased by 65.6%.

15. Big hurricanes mean big grid damage – 2021 was no exception

MISO South Region hourly electricity demand before, during, and after Hurricane Ida landfall, August 24 thru September 9, MWh

While the 2021 season cranked out four major hurricanes, it will be most remembered for Hurricane Ida, which slammed southeast Louisiana at near Category 5 status at the end of August. Early estimates of damages from Ida are $65.25bn – making the storm the sixth-most damaging in history right after Sandy (2012) and before Ike (2008).

By far, the most damaging events to the United States power grid are tropical cyclones. In 1980, NOAA’s National Centers for Environmental Information (NCEI) began recording billion-dollar weather and climate disasters, including drought, flooding, freezing, severe storms, tropical cyclones, wildfires, and winter storms. Over the 21 years, there have been 308 billion-dollar events with estimated damages of $2.085 trillion — with 53.6% ($1.117 trillion) from tropical cyclones and hurricanes alone. These storms’ average cost per year has been $26.6 billion (bn). The storms have been more frequent and more expensive as of late.

Along with NOAA’s billion-dollar events, according to data compiled by the U.S. Department of Energy (DOE), electric companies have reported more than 2,500 major outages since 2002. Nearly half of those outages were caused by weather conditions such as storms, hurricanes, and unspecified severe weather, with roughly 211 million losing power in weather-related disruptions.

16. America’s LNG exports lead the world in December

U.S. monthly natural gas feedstock delivered to LNG export terminals, Dth

In December 2021, the U.S. exported more LNG than any other country for the first time. In a little more than four and a half years, natural gas deliveries to LNG liquefaction export facilities in the United States have increased from zero to roughly 370 million dekatherms (Dth) per month. That’s a remarkable statistic given the short time frame the country has been exporting LNG. And with new capacity continuing to come online, the growth in gas deliveries to LNG facilities is only expected to grow.

Looking ahead to 2022

Over the past 15 years, the power industry has done a phenomenal job reducing carbon and other emissions, including nitrous oxides and particulates. The next 15 years, though challenging, will follow that trajectory by deploying innovative new grid technology and through the expanded digitalization of operations. Electricity is center stage as companies pursue the electrification of nearly everything from electric vehicles to new clean energy systems for buildings.

Implementing energy storage solutions, both long- and short-term, and adding new grid technologies to improve power quality, are necessary to realize the full potential of renewables. Our time’s great ‘energy transition’ relies on smarter engineering designs and sophisticated planning tools. 

The critical task at hand

Maintaining a reliable power grid takes a combination of both variable and dispatchable resources. Natural gas is the primary dispatchable transition fuel today, but grids turn to coal when gas availability is constrained, and prices ratchet up. Coal inventories serve as long-term storage when multi-day weather events strike, and variable resources are diminished. The energy transition needs flexible solutions to better balance the grid – particularly when the weather dictates high load periods. Along with the deployment of new technologies, solving intermittency requires affordable solutions – customers demand it. As 2022 begins, the critical task at hand is to innovate and implement new clean-energy technologies while at the same time keeping energy prices affordable and power supplies reliable.

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Hitachi Energy Velocity Suite