Gas, coal rule US grid despite transition push

Natural gas and coal remain the sources of more than half of US electricity generation, despite massive government-sponsored efforts to build wind and solar power as replacements for hydrocarbons.

They have indeed grown as a percentage of generating capacity and as a share of output. And yet coal and gas remain dominant, providing 58 percent of the electricity generated in the U.S. in the first eight months of this year, according to LSEG data.

This, Gavin Maguire from Reuters reportedis down from 60.4% in the first eight months of 2021, which could give transition advocates some hope that a zero-carbon grid could be possible at some point in the distant future. However, in absolute terms, production from coal and gas-fired plants has increased, Maguire noted, meaning they have actually provided more electricity to the grid than they did when they were a larger percentage of production total in 2021.

The reason, of course, is the growing demand and inflexibility of wind and solar power. As weather-dependent power sources, they cannot provide electricity on demand unless paired with massive batteries that have not yet been economically built. So the grid relies on 24/7 baseload demand from coal and gas-fired power plants.

Population growth is one of the biggest reasons for this increase in electricity demand. Another, which appears more prominently in the media, is the rise of artificial intelligence in the IT industry. In June, The Energy Information Administration reported that US electricity demand has rebounded after the pandemic shutdown, with the strongest growth in “a handful of states experiencing rapid development of large-scale computing facilities such as data centers.”

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Indeed, data centers and the growth of artificial intelligence applications are becoming potentially significant challenges to the energy transition due to the electricity demand they will add to the current total. There are also issues with raw materials to build all the data centers needed to enable even greater use of AI, which in turn would add more demand for electricity that would have to be met by sources reliable around the clock.

In this context, it is not at all surprising that natural gas in particular enjoys a growing demand. The International Energy Agency recognized this in a report since December last year. In it, the IEA said that “a significant drop in the price of natural gas, the withdrawal of coal plants, low wind and hydropower production and high demand for cooling in some regions led to the increase in the share of gas”, reaching 45% of the total. generation in the summer months of 2023.

Gas demand will continue to rise as electricity demand rises, and no amount of new solar and wind capacity can really affect this negatively. This could turn into a problem because building new gas-fired power plants is nowhere near as modern as building solar installations.

Indeed, earlier this year, Upstream reported data from the Federal Energy Regulatory Commission revealing that only 67 MW of new natural gas generating capacity was added in the first four months of the year. This compared to a much more impressive 5.1 GW in the same period in 2023. Solar additions in the same period were 7.9 GW, up from 3.8 GW last year.

Meanwhile, it’s become harder to build a new natural gas plant because of updated EPA emissions rules that impose serious and costly requirements on developers, making them think twice about building new plants. However, this could change due to artificial intelligence.

“Gas is the only cost-effective energy generation capable of providing the kind of reliable 24/7 power that big tech companies demand to power the AI ​​boom,” Doug Kimmelman, founder and senior partner at Energy Capital Partners , private equity investors, said Financial Times earlier this year.

“It’s not going to happen without gas,” EQT chief executive Toby Rice said as the issue of data center electricity demand came into the media spotlight – along with electrification, which is being touted as a essential part of the energy transition. . As essential as it is, the electrification of transport, heating and cooking will also add new demand – and further strain the grid. This, in turn, would strengthen the growth of hydrocarbon power, as nuclear power remains out of favor due to high construction costs.

The situation is a vicious circle. There is a push to electrify as many things as possible to reduce emissions. However, this electrification push adds to the demand for electricity, which can only be partially met by the transition camp’s preferred sources – wind and solar. As this demand must eventually be met, the electrification drive increases demand for natural gas and, to a lesser extent, coal. Ironically, it seems that there can be no transition without electrification, but there can be no electrification without hydrocarbons.

By Irina Slav for Oilprice.com

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