U.S. federal policy has been supportive of low carbon generation since at least 1992 when the Production Tax Credit for wind was first enacted. The sister support mechanism for solar energy – the Investment Tax Credit – was first enacted in 2005. After over 30 years of support the share of fossil fuels in U.S. generation peaked in April 2008 at 71.6% (measured on a trailing 12-month average). The fossil share reached a low of 59.1% in October 2022. This is a fall in share of 12.5 percentage points in 14 years. At this rate it will take until 2090 to get to net zero generation.
Fossil fuel generation has held steady over the last four years as shown in the chart below. Progress on decarbonization has slowed despite the continued build-out of huge wind farms across the middle of the country and a rapid build-out of solar generation. The reasons for the apparent slowing of progress are twofold – rising demand and falling hydro and nuclear power generation.
U.S. Generation by Zero Carbon (green) and Fossil Fuels (gray) (Monthly Mean MW)
It is clear from the chart above that the green net zero generation line is rising; however, this rise is not being accompanied by a fall in the gray line of fossil generation over the last five years. Rising demand is offsetting the increased zero carbon generation and keeping fossil generation at a constant level. Further analysis also shows that the zero-carbon generation is rising more slowly than would be implied by the solar and wind build-out. This is because hydro and nuclear generation has fallen due to plant retirements and the effects of prolonged droughts in the West. Without this effect U.S. zero-carbon generation would be around 12GW higher than it is currently and the call on U.S. fossil fuel generation would have fallen by the same amount.
Gas Burn for Power (bcf/day) vs Demand for Fossil Power (GW)
Data points are 365-day trailing moving mean
The chart above shows the demand for fossil-fueled power on the U.S. grid (x-axis) over the last five years. Demand fell from Q3 2019 through Q4 2020 but has since recovered and has been steady at around 277GW on average from Q4 2021. This reflects the increased overall power demand in the system, much of which is from new crypto mining facilities, and the slow growth in total net zero generation over the last four years as discussed above.
However, we can see from the chart that the share of gas in the fossil fuel mix has increased significantly (y-axis). This means the carbon intensity of fossil-fueled generation is falling as gas-fired generation emits around half the amount of CO2 per MW as coal generation – and this is allowing us to continue to decarbonize the U.S. power grid.
A full switch of the remaining coal generation to natural gas would result in the U.S. power sector emitting around 35% less carbon than it does today; however, it would have massive implications on the U.S. gas sector.
A move to 100% gas-fired fossil fuel power at a constant level of total fossil power demand would require U.S. gas producers to increase their production by around 20% and would lead to a significant increase in gas price volatility. This is because the ability to switch between coal and gas gives a significant dampening effect to gas price spikes.
The more practical solution to meeting decarbonization targets is to see gas consumption remain flat, or rise a little, as the total need for fossil generation falls. The Inflation Reduction Act of 2022 is likely to dramatically increase investment in U.S. renewable power, which would lead to a big reduction in demand for fossil fuel power – but only if U.S. power demand does not rise significantly, nuclear plants remain online, and we see some recovery in hydro power generation.
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