US EIA Electric Power 2009 Year in Review: My Take

The US Energy information Administration released its 2009 annual year in review for the electric power industry on November 23, 2010.  Reading it is like a bad dream all over again as it recites the raw, painful truth about the year we lived though that all would like to forget.

Net power generation and electricity demand fell with the economy in 2009:
  • Net power generation fell 4.1 percent in 2009 to 3,950 million megawatthours (MWh) from 4,119 million MWh in 2008 (Figure ES1). This was the lowest level since 2003 and the largest decline in 60 years of keeping records.  Electric generation fell 0.9-percent decline in 2008 marking the first time generation has fallen two consecutive years in 60 years..
  • GDP contracted 2.6% during 2009 based upon the highly correlated relationship of power generation to economic activity (GDP).
  • Federal Reserve Bank’s index of industrial production contracted 9.3 percent in 2009 resulting in a corresponding 9.1-percent in electricity demand—the lowest level since 1987.
Fuel prices and renewables subsidies continue to reshape the fuel mix:
  • Coal-fired power generation fell 11.6 percent in 2009 to 44.5% market share of total generation it lowest level since 1978 driven by lower natural gas prices and higher coal prices; surplus generating capacity at efficient natural gas plants, and compliance costs with current environmental regulations.
  • Prices for natural gas delivered to electric power plants declined almost 50 percent from their 2008 levels in 2009 with annual average natural gas wellhead prices reaching their lowest level in 7 years.
  • Natural gas-fired power generation grew by 4.3 percent in 2009 increasing the natural gas market share of power generation to 23.3 percent—its highest share since 1970. Gas market share has been growing since 2006.  In 2009 new capacity additions due the low gas prices and improved utilization of existing gas plants(see EIA Table 5.2 on capacity factors), caused the increase in share.
  • Nuclear power generation grew 249MW in 2009 thru upratings for a market share was 20.2 percent of electricity generated in 2009. There is considerable activity underway at NRC seeking approval for life extensions and upratings among the 104 operable units in the United States. In the past ten years uprates totaled 3.6 GW or 3% of nuclear capacity (See EIA Table 1.1).
Wholesale market trading declined in 2009 and retail electric price increases were modest:
  • Wholesale power purchases fell 10.4 percent in 2009 totaled 5,029 million MWh.24 from a peak in 2002 at 8,755 million MWh. Electric utilities and energy-only power marketers each account for half of wholesale power purchases, but the power marketers’ share has fallen from 69.1 percent in 2002 to 51.0 percent in 2009 as financial and credit crises undermined trading. Electric utilities’ wholesale purchase volume has remained steady but utility market share has grown from 29.9 percent in 2002 to 47.0 percent in 2009.
  • Electricity sales for resale (wholesale power sales) fell 10.8 percent in 2009 to 5,065 million MWh. Energy-only providers were 44.2 percent, Electric utilities were 29.5 percent and IPPs 25.6 percent of the 2009 market with combined heat and power plants less than one percent.
  • Retail electricity prices rose 0.9 percent between for 2009 (from 9.74 cents to 9.83 cents per kWh) held down by the 25.8-percent decline in fossil fuel prices delivered to electric plants.  Depending upon the state regulatory process the lag in changes between fuel prices and power prices can be a year or two, so lower natural gas prices in 2009 should continue to hold down retail electricity prices or offset cost increases for smart metering, renewable energy additions and emission reduction costs all of which are driving retail rates higher.
Renewable energy expanded rapidly but still represents a small market share
  • Total non-hydro renewable generation increased 14.0 percent in 2009, following a 19.9-percent increase in 2008. Wind power grew 33.5-percent, solar generation grew 3.1 percent in 2009 but since 1998, generation from non-hydro renewables has grown 86.6 percent.
  • By 2009, renewable generation had a 10.6 percent market share of total generation with hydro at 6.9 percent, wind at 1.9 percent, and wood and wood-derived fuels at 0.9 percent making up the top three contributors. EIA discounted the hydro portion resulting in renewable generation making up 3.6 percent of total generation.
  • Solar power producers added 83 MW of capacity in 2009, a 15.5-percent increase over 2008.  Federal stimulus project funding has driven a rush of solar energy construction. California added 450 MW of existing (utility-scale) solar capacity representing 72.8 percent of total capacity. Nevada added 14.3 percent of capacity. FPL‘s 25 MW DeSoto Solar Energy Plant in Florida, described as the largest photovoltaic solar plant in the world (at the time), and NRG Energy’s 21-MW facility in Blythe, California both came online in 2009. The 20 MW scale of recent solar power plant additions far exceeds the average size of the current fleet of solar units, but the plants proposed are much larger with BrightSource Energy scheduled to add three 390-MW units at its Ivanpah concentrated thermal power plant in California in 2013.
Greenhouse gas emissions fell along with power generation output in 2009:
  • EIA estimated of carbon dioxide (CO2), sulfur dioxide (SO2), and nitrogen oxide (NOx) all declined in 2009 from 2008 levels (See EIA Table 3.9). Reductions primarily resulted from reduced coal-fired generation which produces more emissions per kWh of electricity than other major fuels.
  • SO2 and NOx emissions were cut by installations of new emission control devices as utilities anticipate and prepare for expected tighter emissions regulations from by US EPA.  SO2 emissions fell 23.8 percent between for 2009 to 5,970 thousand metric tons (Table 3.9) the largest yearly decline since 1989. The number of power generators with SO2 control systems grew from 327 in 2008 to 384 in 2009 (Table 3-10), contributing to the reduction in SO2 emissions.
  • NOx emissions dropped 28.1 percent for 2009 from 3,330 to 2,395 thousand metric tons—also the largest decline on record. Since 1998, SOx and NOx emissions have been cut by 55.7 percent and 62.9 percent, respectively, from technology improvements driven by the Clean Air Act Amendments of 1990.
  • CO2 emissions by U.S. power plants fell by 8.6 percent for 2009 from 2,484 million metric tons to 2,270 million metric tons because of lower coal consumption. Emissions from coal-fired power plants typically account for four fifths of CO2 emissions produced by the electric power sector.

The US EIA Annual Electric Power Report reviews the history of the industry and its performance but a complete picture requires combining that review with the Annual EIA Outlook either long term or short term to get the complete picture.

My Take on the Lessons:

  • Renewable energy is growing fast but the sum of all renewable capacity additions has only moved renewable energy market share a small amount. Adding these clean energy sources to the fuel mix is good but it is not sufficient to power a sustainable economic recovery on its own. Moreover, this growth in renewable energy has been driven by mandatory renewable portfolio standards by the states with many states now reaching their goals.  Federal production tax credits and investment tax credits gave way to Federal tax grants in the aftermath of the financial crisis and these cash grants are set to expire.
  • Emissions reductions in the US are driven by the reduction in use of coal fired generation. This is good news but the corollary to this reduction is that the fastest growing share of coal sales in the US are now exports to China.  It is a use it or lose it proposition as China buys up both thermal and metallurgical coal for steelmaking.  The good news is the improvement in power plant emissions performance from the addition of scrubbers and other technology.  Coal market share is dropping but it is still essential for providing reliable, low cost baseload generation.
  • Growth in unconventional natural gas production in the US is America’s strategic advantage. Natural gas remains the fuel of choice and makes possible both the reduction in coal fired power generation as well as the ramp up of renewable energy generation which requires backup.  Low natural gas prices caused by the recessionary impacts of reduced demand and the growth in supply from unconventional forces is a short-term condition that will mean higher gas prices as the economy lifts demand.
  • Nuclear power is a compelling American energy success story. The capacity creep from upratings over the last ten years has added more nuclear power capacity to America’s power generation mix than almost all the renewable energy projects built.  If we are not going to build more coal-fired baseload generation there is only one practicable alternative and that is new nuclear.  When it will happen is still unclear given the lack of US government support for making nuclear a key part of our energy future.