Natural Gas and Wind Power Take Electricity Market Share Over Past Decade
The Energy Information Administration (EIA) released a really interesting chart a few weeks ago, showing what types of new power plants come online in a given year. While this has already been talked about in energy circles over the past two weeks (notably Brad Plumer’s article from the Washington Post, which you can read here), there are a few important things worth highlighting.
First, as it shows, the coal industry has not installed any significant amount of new power plants since the late 1980s and early 1990s. The last decade and a half, natural gas power plants have made up the lion’s share of new capacity coming online, with a huge spike in the mid-2000s. (The surge in natural gas additions is interesting. It is likely due to concerns over supply shortages after the blackouts in California in the early part of the decade.)
This is important because over the past year or so, the coal industry has blamed the EPA and “over-regulation” for all of the industry’s ills. However, this graph shows that their troubles have been years in the making. Far from it being an out-of-control-job-killing EPA, the natural gas industry has been stamping out the coal industry for years – long before the Obama administration. As I noted in a previous blog post, electricity from natural gas pulled even with coal-powered generation this year for the first time ever – both generating 32% of our nation’s electricity.
The second interesting fact found in the EIA graph is that since 2006, the wind industry has come on strong. Over the past six years, wind power has represented 36% of new power generation capacity. Prices for both solar and wind power have dropped in recent years, making it more affordable for developers to install.
Looking forward, there is little reason to believe that this trend will look significantly different. Analysts expect natural gas prices to remain low for several years, making the economics of natural gas-fired power plants favorable relative to coal plants. Also, costs for renewable energy will continue to decline, allowing for the wind and solar industries to continue to capture share.
One additional thing to note is that the time horizon for payback on most power plants is measured in decades. This means that developers need to consider how these assets will perform not only today or in the next few years, but 20-30 years from now. Such a long timeframe makes it nearly impossible to build a new coal plant today, as most people expect sharp reductions in carbon emissions will be required – maybe not next year or the year after, but eventually. With that assumption built-in, preference is given to lower-emitting technologies (natural gas and renewables), and makes coal plants particularly risky investments.
