EIA projections missed unprecedented growth in solar PV installations and a sharp downturn in coal production over the last decade.
For a more detailed analysis of inaccuracy in the EIA’s projections, see CEA’s white paper on the topic here.
Policymakers, utility commissions, investors, and energy companies rely on the U.S. Energy Information Administration’s (EIA’s) data for a wide range of energy analyses and the historical data provided by the EIA has been extremely useful in many arenas. However, the EIA’s projections of future trends are often far from accurate as has been discussed by others here, here and here.
The projections published in the EIA’s Annual Energy Outlook (AEO) have invariably overestimated the cost of renewable electricity generation and fallen sadly short of predicting new additions of wind and solar capacity. For example, Figure 1 shows that the projections published in the EIA’s Annual Energy Outlook repeatedly underestimated U.S. utility-scale solar photovoltaic (PV) capacity from 2011 to 2015 and continue to predict that solar installations will largely stall through about 2025.
In reality, however, solar PV capacity is growing at an unprecedented rate. The Solar Energy Industries Association reported that by the third quarter of 2016, the cumulative U.S. utility-scale solar PV capacity (including capacity which was under contract but not yet operating) exceeded the AEO2015 projection for capacity in 2039. Accounting for planned capacity which had been announced but was not yet under contract by Q3 2016 indicates that utility-scale solar PV capacity will soon far surpass all AEO projections for 2040.
In addition to missing the sharp rise in solar photovoltaic installations, EIA projections also missed a dramatic downturn in coal production over the last decade. They failed to pick up on the trend year after year and still predict flat or rising coal production through 2040, as shown in Figure 2.
Disruptive innovations tend to precipitate new market trends that are notoriously difficult to predict. Just as the invention of the personal computer led to an abrupt decline in the typewriter industry in the late 1900’s, a massive transition toward renewable resources is transforming U.S. energy markets and so far EIA projections have failed to keep up with this transition. Every year, EIA forecasts predict a return to the trends of the 90’s, but the technological and political landscapes surrounding the U.S. energy industry are changing rapidly and historical precedent suggests that energy markets may never return to those of past decades.
For more details, readers are encouraged to download the full CEA White Paper here.
This event is free and open to the public. You must be registered to attend. More information and registration available here.
Electricity generation accounts for about 30% of U.S. greenhouse gas emissions. While emissions have declined by about 20% in the last ten years, much of this reduction is due to the fortuitous availability of cheap natural gas which
has provided incentives to substitute less CO2 intensive natural gas for coal as a generation fuel. The sector faces many challenges to meet long run 2050 goals of reducing emissions by as much as 80% from 2005 levels. These challenges include the diversity of federal, state and municipal regulation, the diverse and balkanized structure of the industry from state to state and region to region, the failure to enact policies to place a price on all carbon emissions,
the extensive reliance on subsidies and command and control regulation to promote renewables and energy efficiencies, uncertainties about aggressive assumptions about improvements in energy efficiency beyond long-term trends, pre-mature closure of carbon free nuclear generating technologies, integrating renewables efficiently into large regional grids, methane leaks, and transmission constraints. The lecture will discuss these challenges and suggest policies to reduce the costs and smooth the transition to a low carbon electricity sector.
Paul L. Joskow became President of the Alfred P. Sloan Foundation on January 1, 2008. He is also the Elizabeth and James Killian Professor of Economics, Emeritus at MIT. He received a BA from Cornell University in 1968 and a PhD in Economics from Yale University in 1972. See full biography here.
Clean Energy Action has questioned the practice of making long-term continued investments in coal-fired power plants for years. These concerns are driven by several factors including carbon dioxide emissions which in many states make coal plants the largest source of greenhouse gas emissions, emission of pollutants like mercury and sulfur dioxide, increasingly unfavorable economics, and the uncertainty of future coal prices and supplies.
The price of coal has changed greatly over the last two decades. This volatility puts continued investments in coal-fired power plants at risk of becoming stranded assets – assets that have suffered from unanticipated or premature write-downs, devaluations or conversion to liabilities. Rather than adding pollution control equipment or other investments to keep coal plants online, regulators and utilities should consider making plans to phase out coal power.
Coal plants can’t operate without a stable supply of coal over their entire lifetime, which means that the long-term stability of coal prices and supplies are essential to the solvency of a coal plant investment. In 2013, CEA published a detailed analysis of historical coal prices in each U.S. state to gain insight into their stability. The study revealed that prices rose steadily over the preceding decade, thereby continually increasing costs for coal based utilities.
In light of the recent coal industry bankruptcies, we updated this report to include more recent data and found that instability in the coal industry was paralleled by decreasing coal prices and persistently rising production costs, resulting in dangerously low profit margins. Our analyses indicate that utility commissions, utilities, and political leaders should seriously consider the unpredictable nature of fossil fuel markets when making decisions about long-term energy investments. Our findings point to the long-term economic benefits of investing in “free fuel” renewable energy resources such as wind and solar that have stable and affordable prices.
An analysis of the economic impacts of Xcel Energy’s proposed Rush Creek Wind Project indicates that the proposed investment in wind generation would produce net economic benefits for the state of Colorado. The study was prepared by the Leeds School of Business and funded by Xcel Energy.
Investing in 300 wind turbines made in Colorado that collectively produce 600 megawatts of wind energy would reduce “future generation of electricity using gas-fired and coal-fired resources.” Along with investments “in purchasing and erecting the wind turbines, the project will include the creation of access roads, pouring of foundations, installation of transmission lines, and construction of substations.” In total, the study projects that these investments will result in a projected net increase of 7,136 jobs (Table 1, page 6) in Colorado.
Reductions in operating expenditures, “notably – fuel costs,” will result in lower revenue requirements for Colorado ratepayers as wind generation lowers the projected revenue required to generate electricity by 0.7% (Table 3, page 12). From 2016 through 2040, the study projects that the combination of these savings for consumers and investment in renewable generating capacity will increase Colorado’s projected GDP by over $1 billion (Table 1, page 6).