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Renewable Electricity Generation Gaining Market Share

As 2018 nears a close, natural gas prices are hovering around $4.50/MMbtu for January 2019. Record heat during the summer of 2018 combined with a record cold November has left storage well below normal, driving natural gas prices higher. While much of the market is focused on the short-term swings in weather and its impacts to natural gas pricing, several interesting pieces of news have filtered out that could have a significant impact on the long term outlook for natural gas. Over the last 3 days, Stanford University, Intel and SRP, Facebook, and Walton EMC and Xcel Energy have announced investments in a combination of solar and wind to provide carbon free power. The first represents private investment in accomplishing that goal by adding a new 88 MW solar project. The second and third represent private-public partnerships to add a combined 300 MW of solar in Arizona and Georgia. The final represents the first public utility targeting a goal of 100% carbon free emissions by 2050 through a combination of wind, solar, and other sources. These pieces of news all represent a singular trend, continued growth in renewable electricity generation, and not just in California.

In 2014, BTU Analytics wrote some of our first energy market commentaries (Power Demand a Zero Sum Game Part 1 and Part II) on the potential impact of solar and wind on the future of natural gas demand. In these pieces, BTU Analytics developed two scenarios on the growth of renewable electricity generation from 2014-2020. Renewable electricity generation is primarily composed of wind and solar generation. The two scenarios estimated renewable electricity generation would account for between 9.9% and 11.2% of US electricity generation by 2018. Additionally, by 2020 gains in wind and solar would result in renewable electricity generation accounting for 11-13% of total generation.

The graph above highlights the actual results in electricity generation (dark blue bars) from 2015-2018 versus our Sept. 2014 scenarios (blue lines). In 2014, renewable electricity generation accounted for just 7% of US electricity generation and by 2017 surpassed 10% of total generation for the first time. During 2018, renewable electricity generation growth continued,  accounting for over 11% of electricity generation. Renewable electricity generation beat the base scenario from 2014 estimate by two full years and matched the high-end estimate.

Taking into account that renewable generation could grow faster than we’ve historically modeled, for this market commentary, we illustrate not only what the outcomes of a simple linear growth model might look like, but what a more aggressive exponential outcome might be and compare those to our forecasted expectations of growth in renewable electricity generation.

A linear forecast indicates that renewable electricity generation should grow by 2023 to just under 15% of the electricity generated in 2023.

However, the marketplace is clearly shifting with both private and public markets investing materially in solar and wind generation over the last several years. With more businesses, utilities, and consumers investing in solar and wind, the growth rate in renewable electricity generation could continue to accelerate.  Should that continue to happen (exponential curve) above, renewable electricity generation could account for nearly 23% of total generation by 2023.

Unlike traditional generation facilities which can take years to permit and develop, solar farms can be developed rapidly. For example, Stanford University expects the 88 MW solar plant to be operational by 2021. Thus, tracking currently announced projects may under predict the rate of growth in renewable generation.

In our Henry Hub Outlook and Long Term Gas Outlook, we model additional growth over the linear case based on project announcements, changes in commodity pricing, and changes in overall load across the US. Factoring in additional assumptions, BTU Analytics expects 16.5% of US electricity coming from renewable sources by 2023.

To keep on top of evolving impacts of renewable electricity generation, on the natural gas market,  check out BTU Analytics Henry Hub Outlook and Long-Term Natural Gas Outlook reports.

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