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EIA's long-term projections show the United States by 2050 will be running on natural gas combined-cycle and solar photovoltaic (PV).
FREMONT, CA: Energy Information Administration (EIA) predicts that by 2050 all the electricity generating capacity additions installed in the United States will be natural gas combined-cycle and solar photovoltaic (PV). Power generation from onshore wind is competitive only in few regions before the legislated phase-out of the production tax credit (PTC). However, later in the projection period as demand increases and the cost for installing wind turbines continue to decline, it becomes more competitive. EIA’s Annual Energy Outlook 2019 identified two measures that when combined results in an intuitive framework for understanding the capacity expansion decisions modeled for utility-scale power plants.
The levelized cost of electricity (LCOE) accounts for the overall cost to build and operate a power plant which is converted to a level stream of payments over the course of the plant’s assumed financial lifetime. Operating costs include expected maintenance costs and fuel costs. Installed capital costs include financing costs and construction costs. Other applicable tax credits or subsidies are also included in LCOEs. The levelized avoided cost of electricity (LACE) represents the differences in the grid services each generating technology is providing to the grid. For instance, natural gas combined-cycle plants and coal plants have similar LACE value as they provide dispatchable baseload services to the grid. For the potential revenues from sales of electricity generated, a generator’s avoided cost provides a proxy. For LCOE, the revenues are changed and divided in stream of payments over the plant’s predicted financial lifetime.
Power plants are profitable and attractive for investment when their projected LACE exceeds their predicted LCOE which means that their value-cost ratio exceeds one. Natural gas combined-cycle units are considered a marginal source of electricity generation. This indicates that this technology is the basis of comparison for new power plants. The power generation in these plants is directly linked to the prices of natural gas. If the price increases, the marginal source becomes more expensive to operate. Generally, solar PV’s LACE is flat or declining during the projection period. Solar capacity saturates during the midday hours as the solar penetration in the grid increases. This decreases the value of electricity delivered in those hours.
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