In 2017 natural gas fired power plants generated 32 % of the electricity in the United States. Coal fired power plants delivered about 30 % of all power, while nuclear delivered about 20 %. Nearly 20 % came from renewable energy sources, out of which 47 % came from hydro power plants and about 37 % came from wind turbines.

Eight years earlier, 2009, when the shale-gas revolution had started to take off, coal was the number one source, 44 % of all electric generation. Natural gas represented 23 % of the generation and nuclear was at 20 %. Renewable generation, basically hydro and wind, produced 10.5 % of the electric power. (EIA data).

Natural gas has replaced coal as the primary source of power generation. Nuclear is basically unchanged at 20 %, while renewables with the growth of wind and solar generation, has doubled and represents about the same proportion of the power generation as nuclear.

In an industry that traditionally changes slow it is a big shift that has happened fast.

However, at a closer and deeper look, the changes in the underlying fundamentals are even more profound. Based on data from Lazard Levelized Cost of Energy Analysis and as Forbes points out in By the Numbers, “Forecast: Bright and Breezy” (Forbes August 31, 2018), since 2009 the cost of generation, without subsidies, for solar has come down 86 %, from wind 67 %. Natural gas is down 27 %. Coal is also down, but only with 8 %. Nuclear is up 20 %.

The result is that on average, wind is now the lowest cost of electric energy, 4.5 cents/kWh followed by utility size solar at 5 cents/kWh. Natural gas is close at 6 cents/kWh. Coal is about 10 cents/kWh and nuclear is at 14.8 cents kWh. (The numbers are averages. Individual plants can be higher or lower.)

The costs above do not include the costs of interconnections to the electric grid or environmental costs such as the cost of carbon, but even with a price on carbon the fundamentals would probably not change dramatically other than coal would loose more against the other sources for generation.

Given these profound changes in the fundamentals, it is likely that the trend towards more natural gas, wind and solar will continue. The pace of change, faster or slower, will be influenced by federal and State policies. Some States like California has taken many actions to accelerate the transition to more renewable energy sources. Many States have followed with ambitious renewable portfolio standards (RPS). States like Wisconsin, New York and New Jersey are subsidizing nuclear power generation, recognizing the zero carbon emissions and local economic impacts. Etc.

The change in “fuel mix” will have implications for the grid. More variable resources, wind and solar, on the system will require more resources to balance the variability, such as more flexible generation resources, more flexible demand, more storage and operations over larger regions.

Probably the biggest impact, directly and indirectly, of the change in power generation, will be on wholesale electricity markets. In the original paradigm wholesale markets were technology agnostic and provided reliability at the lowest cost. The State-level subsidies for technologies and in some cases for individual power plants, right or wrong, distort the price signals. Add to those challenges concerns about reliability and resilience due to more variable resources and larger dependence on the natural gas infrastructure. Wholesale markets will have to evolve. As Mort Webster in an article in Transform (by GE Power), Wholesale Electricity Markets: Times Are a Changin’ (Again), has pointed out there are three main ways this evolution may happen: adding new markets, for example for a “fuel security” product, or a major overhaul and rebalancing of the three market components (energy, capacity and ancillary services), or a return to the regulated model with cost-of-service pricing.

It is hard to predict what precisely the new wholesale markets paradigm(s) will look like, but in any case, as they say, interesting times.



Additional reading: Energy Innovation/Sonia AggarwalFuture Energy Markets and Implications for Retail Markets.