EIA expects solar to lead U.S. power generation growth as coal demand drops

Overall, U.S. solar generating capacity is forecast to rise by 84% over the next two years, making solar the leading source of growth in U.S. electricity generation through 2025, the EIA said.

Read archived story: EIA expects power from solar, wind generation to top coal in 2024

“We are experiencing a significant shift in U.S. electric generation, as solar generation grows rapidly, taking market share from coal and tempering the growth in natural gas usage,” said EIA Administrator Joe DeCarolis, in a press release. “Coal and natural gas remain important to the U.S. electric grid, even as variable renewable resources such as solar and wind grow.”

Wind generation will grow by 30 KWh this year and by 17 billion KWh next to reach a 12% share in total power generation in 2025, the EIA said.

The rise in power generation from renewable energy sources comes as domestic coal production is forecast to drop by 16% this year to 489 million short tons and by another 12% next year to 429 million short tons, it said.

The EIA attributes the likely production decline primarily to its forecast for an 8% fall in U.S. coal consumption in each year of the forecast to 391 million short tons this year and to nearly 362 million short tons next year.

The cost for U.S. electric power generation from coal is set to decline to $2.40 per million British thermal units by December 2025, from $2.53 million Btus in January 2024, the EIA said. That’s cheaper on an energy basis than natural gas for most of the months leading up to December 2025, but coal is “more expensive when accounting for the greater thermal efficiency of natural gas,” it said.

As an example, it said new, efficient combined-cycle gas turbine plants entering service use about 65% of the primary energy input of a coal-fired plant to provide the same generation.

Natural gas, meanwhile, is expected to narrow its U.S. supply surplus.

The EIA estimated that the U.S. started this year with 14% more natural gas in storage than the previous five-year average, but demand growth is expected to outpace supply growth by 0.7 billion cubic feet per day this, reducing the surplus to the five-year average to 8% by the end of the year.

Natural-gas inventories, however, will likely remain “high enough to limit significant upward pressure on prices,” it said.

The EIA expects the annual average for Henry Hub natural-gas prices to remain below $3 million Btus, but also said the “potential for prices to rise significantly exist” as weather and expected “shifts in the mix of sources used to generate electricity create uncertainty” in its forecast.

In Tuesday dealings, February natural-gas futures
NGG24,
+7.89%
traded at $3.326 per million Btus on the New York Mercantile Exchange, up nearly 12% with analysts attributing the gains to U.S. winter weather forecasts.

For now, the EIA has lowered its 2024 U.S. natural gas average price forecast to $2.66 million Btus, down 4.6% from the December forecast. It also issued a 2025 forecast average of $2.95 million Btus.

For oil, the EIA expects U.S. crude-oil production to reach 13.2 million barrels per day, on average for this year, and more than 13.4 million barrels per day in 2025. Both would mark fresh record highs, it said.

Read: Record U.S. oil production sparks battle for market share with Saudi Arabia and OPEC+

The government agency forecast an average West Texas Intermediate crude price of $77.99 a barrel for 2024, down 0.1% from the previous forecast, and issued a forecast of $79.48 for 2025. For global benchmark Brent crude, it sees an average of $82.49 this year, down 0.1% from the December forecast, and for 2025, an average of $79.48.

On Tuesday afternoon, February WTI oil
CLG24,
+1.94%

CL.1,
+1.94%
was up 2.6% at $72.61 a barrel on Nymex, while Brent crude for March delivery
BRNH24,
+1.81%

BRN00,
+1.81%
traded at $77.77 a barrel on ICE Futures Europe, up 2.1%.