Released January 16, 2020 | SUGAR LAND
en
Written by John Egan for Industrial Info Resources (Sugar Land, Texas)--Continued low natural gas prices could keep U.S. wholesale electric prices flat for a quarter century, but implementation of a carbon tax would more than double prices by the end of the decade, consultants for ABB Limited (NYSE:ABB) (Zurich, Switzerland) said on a webinar Wednesday.
Shilpa Kokate, an ABB senior advisory consultant, laid out four scenarios for electricity pricing based on various inputs, including fuel costs, demand growth and environmental regulation. Changes in any of those areas could have a dramatic impact on electric prices.
The company's base case envisions electricity prices rising modestly over the next 25 years. But a continuation of low gas prices would hold electric prices steady for the next quarter century; by 2044, prices in that scenario would barely exceed $30 per megawatt-hour (MWh), measured in 2019 dollars. But in ABB's "high gas prices" case, average wholesale power costs could nearly double over the next 25 years. And if a carbon tax of $20 per short ton was imposed in 2023, and it rose to $47 per short ton in 2026, wholesale electric prices would jump to around $73 per MWh in 2044, she added.
Click on the image at right to see ABB's 25-year projection of average national wholesale electric prices in four scenarios.
Gas prices are one of several critical inputs to the ABB electric price forecast. The firm, which produces two 25-year forecasts per year, has lowered its current gas costs by 4.3% since its prior forecast, released in the spring of 2019. Prices for the 2020-2025 period have fallen about 8.5% compared to last spring's forecast, senior advisory consultant Garrick Hoops told listeners, reflecting continued oversupply that has been driven by "significantly higher resource estimates at similar cost" for the Haynesville Shale and Permian Basin. The outlook for other unconventional formations, including the Marcellus, Utica, DuVernay and Spirit River, have had their long-term resource potential lowered by 10% to 20%, he added.
ABB expects that the capital cost to generate electricity from wind and solar generators will continue their downward trajectory for the next two-plus decades, though it appears that wind's cost decline is flattening while solar's will continue to fall rapidly. The cost to install lithium-ion battery energy storage systems is projected to fall dramatically over the next 25 years.
Turning to coal, Hoops said U.S. production declined in 2019. Whereas producers benefitted in 2018 from a 12% increase in thermal coal exports, those exports fell about 26% in 2019 on a year-over-year basis. "Without support from large export volumes, U.S. coal prices are expected to continue to weaken in the short term. Long term, structural weaknesses remain," he projected, adding that prices are expected to be "largely flat over the near term."
Although U.S. natural gas production has exceeded demand for some time, holding down prices, production growth slowed in 2019, Hoops told listeners. Increased pipeline exports to Mexico, and liquefied natural gas (LNG) exports, have strengthened overall demand and soaked up some excess production.
"Exports is where the story is," he said of natural gas. "Exports are the primary driving factor for growth in overall natural gas demand."
Pipeline gas exports to Mexico grew strongly in 2019, Hoops said, but he expects that growth to moderate in 2020 as several pipeline projects have been delayed. On the LNG front, the ABB consultant said shipments are expected to reach about 8 billion cubic feet per day (Bcf/d) by mid-2020 and about 10 Bcf/d by the start of 2021.
Kokate noted that several states, including New York, Maine, New Mexico, Nevada and Maryland, increased their renewable portfolio standards (RPS) since the firm's previous study, released in last spring. U.S. electric demand growth has slowed to 0.66% on a compound annual growth rate in the current study, down slightly from the spring 2019 study, but down significantly from the fall 2008 study, when it was projected at 1.4% per year.
The cumulative effect of these and other market forces are evident in ABB's projection of which fuels are used to generate electricity. In Texas and the Northeast, renewable generation is projected to continue squeezing coal, and to a lesser extent gas, out of the electric market through 2044. In the Midwest, the loss of coal will result in increased gas and renewable generation over the next quarter century. The Southeast will absorb a double whammy: loss of coal and nuclear generation. Gas, and to a lesser degree renewable generation, are expected to continue taking market share away from coal and nuclear.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
Shilpa Kokate, an ABB senior advisory consultant, laid out four scenarios for electricity pricing based on various inputs, including fuel costs, demand growth and environmental regulation. Changes in any of those areas could have a dramatic impact on electric prices.
The company's base case envisions electricity prices rising modestly over the next 25 years. But a continuation of low gas prices would hold electric prices steady for the next quarter century; by 2044, prices in that scenario would barely exceed $30 per megawatt-hour (MWh), measured in 2019 dollars. But in ABB's "high gas prices" case, average wholesale power costs could nearly double over the next 25 years. And if a carbon tax of $20 per short ton was imposed in 2023, and it rose to $47 per short ton in 2026, wholesale electric prices would jump to around $73 per MWh in 2044, she added.
Click on the image at right to see ABB's 25-year projection of average national wholesale electric prices in four scenarios. Gas prices are one of several critical inputs to the ABB electric price forecast. The firm, which produces two 25-year forecasts per year, has lowered its current gas costs by 4.3% since its prior forecast, released in the spring of 2019. Prices for the 2020-2025 period have fallen about 8.5% compared to last spring's forecast, senior advisory consultant Garrick Hoops told listeners, reflecting continued oversupply that has been driven by "significantly higher resource estimates at similar cost" for the Haynesville Shale and Permian Basin. The outlook for other unconventional formations, including the Marcellus, Utica, DuVernay and Spirit River, have had their long-term resource potential lowered by 10% to 20%, he added.
ABB expects that the capital cost to generate electricity from wind and solar generators will continue their downward trajectory for the next two-plus decades, though it appears that wind's cost decline is flattening while solar's will continue to fall rapidly. The cost to install lithium-ion battery energy storage systems is projected to fall dramatically over the next 25 years.
Turning to coal, Hoops said U.S. production declined in 2019. Whereas producers benefitted in 2018 from a 12% increase in thermal coal exports, those exports fell about 26% in 2019 on a year-over-year basis. "Without support from large export volumes, U.S. coal prices are expected to continue to weaken in the short term. Long term, structural weaknesses remain," he projected, adding that prices are expected to be "largely flat over the near term."
Although U.S. natural gas production has exceeded demand for some time, holding down prices, production growth slowed in 2019, Hoops told listeners. Increased pipeline exports to Mexico, and liquefied natural gas (LNG) exports, have strengthened overall demand and soaked up some excess production.
"Exports is where the story is," he said of natural gas. "Exports are the primary driving factor for growth in overall natural gas demand."
Pipeline gas exports to Mexico grew strongly in 2019, Hoops said, but he expects that growth to moderate in 2020 as several pipeline projects have been delayed. On the LNG front, the ABB consultant said shipments are expected to reach about 8 billion cubic feet per day (Bcf/d) by mid-2020 and about 10 Bcf/d by the start of 2021.
Kokate noted that several states, including New York, Maine, New Mexico, Nevada and Maryland, increased their renewable portfolio standards (RPS) since the firm's previous study, released in last spring. U.S. electric demand growth has slowed to 0.66% on a compound annual growth rate in the current study, down slightly from the spring 2019 study, but down significantly from the fall 2008 study, when it was projected at 1.4% per year.
The cumulative effect of these and other market forces are evident in ABB's projection of which fuels are used to generate electricity. In Texas and the Northeast, renewable generation is projected to continue squeezing coal, and to a lesser extent gas, out of the electric market through 2044. In the Midwest, the loss of coal will result in increased gas and renewable generation over the next quarter century. The Southeast will absorb a double whammy: loss of coal and nuclear generation. Gas, and to a lesser degree renewable generation, are expected to continue taking market share away from coal and nuclear.
Industrial Info Resources (IIR), with global headquarters in Sugar Land, Texas, six offices in North America and 12 international offices, is the leading provider of global market intelligence specializing in the industrial process, heavy manufacturing and energy markets. Industrial Info's quality-assurance philosophy, the Living Forward Reporting Principle, provides up-to-the-minute intelligence on what's happening now, while constantly keeping track of future opportunities. Follow IIR on: Facebook - Twitter - LinkedIn. For more information on our coverage, send inquiries to info@industrialinfo.com or visit us online at http://www.industrialinfo.com.
