15 U.S. power industry trends: The direction ahead in 2023

On August 16, 2022, the United States passed the largest investment legislation supporting renewable energy in the country’s history. The Inflation Reduction Act (IRA) law includes roughly $370 billion in support of the energy transition. This big investment in carbon-free energy raises the most perplexing dilemma facing grid planners: How does one solve the intermittency of renewable resources while continuing to grow wind and solar capacity? The answer is wrapped up in the buildout of new transmission infrastructure, energy storage, and the expansion of new grid-enabling technologies. At the same time, the continued development of wind, solar, and battery storage needs to come at an affordable price.

Higher everything in 2022

In 2022, electricity demand, average rates, and natural gas consumption for power generation set all-time records, despite the average cost of natural gas at times running three times higher than the prior year. Renewable energy also grew to record output while power supplied by coal declined.?The rising cost of energy has customers paying closer attention to their utility bills; however, there is good news in 2023 already. The mild winter has reduced demand for natural gas and at least temporarily brought prices down to pre-2022 levels.

Electricity production growing

During 2022, the electricity industry continued to rebound from the depth of the 2020 pandemic. Based on preliminary data, electricity production for 2022 will be about 2.5% higher than in 2021 when power generation increased by 3%. Natural gas fueled a record 1,673 million megawatt hours (MWh) — up 6% — while wind (429 million MWh, 13.3%), solar (143 million MWh, 24.4%), and hydro (264 million MWh, 5.1%) all increased.?However, most of what natural gas gained was relinquished by coal, declining output by approximately 9%.

Natural gas accounted for nearly 40% of U.S. electricity production in 2022, while renewables (21.7%), coal (19.4%), nuclear (18.4%), and other fossil fuels (0.8%) accounted for the rest. Renewables, including hydro, wind, solar, geothermal, and biomass combined, topped both nuclear and coal in the fuel mix. Given the continued closure of aging and uneconomic coal and nuclear power plants, that trend is expected to continue. As a result, renewables will maintain the second largest position in the fuel mix for years.??

60:40 and holding

Despite the tremendous buildout of wind and solar capacity in recent years, the ratio of fossil fuel to zero-carbon electricity production has continued to remain approximately 60:40. As noted above, during 2022, natural gas (39.7%), coal (19.4%), and other fossil fuels (0.8%) accounted for about 60% of the country’s total power production. On the other hand, wind (10.2%), hydro (6.3%), solar (3.4%), nuclear (18.4%), and other renewable energy (1.8%) accounted for roughly 40% of total production. This ratio has been holding steady for some time, driven mostly by the continued need for dispatchable resources, especially during extreme weather events and peak demand times of the day.

Grid investment expected to remain high in 2023

Driven primarily by the post-pandemic recovery over the past two years, transmission, distribution, and generation investment continue to surge. In September 2022, the Edison Electric Institute (EEI) projected capital expenditures (CapEx) by investor-owned utilities would top $154.7 billion during 2022—up a robust 15.4% from the $134.1 billion reached in 2021. The institute expects CapEx to run between $155 and $160 billion in 2023 and 2024. Investment in distribution technology, including everything from substation rebuilds to smart grid investments, is expected to lead the way, accounting for one-third (33%) of all expenditures, with investment in generation (24%), transmission (20%), and gas-related investments (14%) accounting for most of the rest.

Looking ahead in 2023: electricity demand on the move

Electricity demand likely will grow despite higher electricity rates as the electrification of transportation and infrastructure continues to increase.?According to statistics compiled by the International Energy Agency (IEA), 10 million electric vehicles (EVs) were sold in 2022—about 13% of all auto sales. Today there are more than 25 million EVs on the road. As recently as 2010, there were virtually none. According to a new study by BloombergNEF, global low-carbon technology investment was about $1.1 trillion in 2022, a new record. Adding to those statistics, about 30% of the global energy supply is produced by renewable resources today; that figure was less than 20% a decade ago.?

Natural gas demand will grow as more coal plants shut down, and the need for dispatchable energy supporting renewable projects gains traction. In addition, the number of solar and battery storage projects will grow, driven by attractive incentives built into the recently enacted IRA legislation. According to Hitachi Energy’s Velocity Suite research team, more than 20 gigawatts (GW) of utility-scale solar capacity is currently under construction and expected online in 2023. There are more than 250 battery storage projects (about 20 GW) in development, with nearly 140 projects (6.4 GW) currently under construction. Along with continued investment in clean energy technology, the development and buildout of transmission and other grid technologies will be a central focus in 2023.

The big challenge for 2023

Soaring prices for energy supply, materials, and critical minerals that support clean technology will weigh heavily on most projects. How much is too much? The greatest challenge to the energy transition is keeping electricity affordable and reliable. The best way to achieve that goal is through innovation and better engineering.

The following charts and captions highlight some of the most interesting industry trends that will make more news in 2023.

1. America’s great fuel convergence begins to diverge

U.S. electricity generation by fuel source, terawatt hours (TWh)

After converging in 2020, electricity production by wind, solar and other renewable energy resources have surpassed both nuclear and coal in the U.S. fuel mix. Natural gas supplied approximately 40% of U.S. electricity production in 2022, followed by renewables, including wind, solar, hydro, geothermal, and biomass resources (21.7%), coal (19.4%), and nuclear (18.4%). The strong performance of natural gas occurred despite much higher gas prices. Plant closures were most responsible for the decline in coal (-9% year-over-year) electricity production.

2. Natural gas, wind, and solar continue to dominate new capacity additions across the U.S.

U.S. capacity additions by fuel, 2011-2022p, megawatts (MW)

Over the past decade, natural gas, wind, and solar (GWS) have dominated new capacity construction across the United States. Since 2013, the three power resources have accounted for more than 96.5% of all capacity additions (268 GW), with a remarkable 99% (154.9 GW) during the last five years alone. Apart from the addition of only two nuclear reactors currently under construction in the U.S., most expansion projects during the next decade will continue to be GWS, with storage a part of virtually all solar projects. According to data compiled by Hitachi Energy’s Velocity Suite research team, about 25 GW of new capacity was added in 2022 and an additional 57 GW is currently under construction or testing with commercial online goals over the next two years. Nearly 96% is GWS capacity.

3. Increase in electricity production by natural gas driven by the need for dispatchable resources and coal plant closures?

U.S. natural gas electricity production (MWh) and average annual fuel cost (current $/MWh)

During 2022, the average price of natural gas delivered to U.S. power plants was about $6.54/one million British thermal units (MMBtu)—nearly 3-fold higher than the $2.40/MMBtu reported for the same time in 2020. Despite higher prices, this growth in market share is a testament to the need for dispatchable resources during extreme weather events and at certain times of every day. In 2022, on three separate days in July, natural gas set new U.S. records for power production. On December 23, 2022, natural gas consumption nationwide topped 141 billion cubic feet per day (Bcf/d), setting a new consumption record. The last record was set on January 1, 2018, at 137.1 Bcf/d.?

4. Electric demand and rates at record levels

U.S. average prices (￠/kilowatt hours (kWh) by sector and total electricity sales (millions of MWh) to ultimate customers

In 2022, driven by higher fuel costs and infrastructure investments, the price of retail electricity increased by a robust 11.5%, reaching an annual average price of 12.38 ￠/kWh. Residential electricity topped 15 ￠/kWh for the first time. Meanwhile, electricity demand topped 3,880 million MWh—up 2.1%. In 2022, the average annual price and the total electricity sales set new records. These upward trends will likely continue over the next several years, spurred on by potential volatility in energy costs and heavy investment in new generation and grid technologies.

5. Generation dynamics across the states, 2011 compared to 2021

Change in electricity production, millions of MWh

Percentage change in electricity production, %

Over the past decade, overall electricity production in the U.S. has remained relatively flat, increasing by only 0.4%. Coal and nuclear plant closures and the buildout of GWS projects are driving big changes within each state. The top three states in terms of increased generation over the past decade are Texas (up 45.8 million MWh, 10.5%), Virginia (26.5 million MWh, 39.8%), and Florida (24.3 million MWh, 11%). The top three states in terms of decreased power production include Kentucky (-28.2 million MWh, -28.7%), Indiana (-28.2 million MWh, -22%), and Massachusetts (-18.6 million MWh, -48.9%). From a percentage change perspective, the leading states increasing electricity production are South Dakota (up 51.2%), Virginia (39.8%), and Mississippi (31.4%). The largest percentage declines in generation output belong to Vermont (-69.4%), Massachusetts (-48.9%), and Delaware (-34.4%). The Midwest and New England states have experienced the largest regional declines in power production, while the high-wind growth central states and high-population states like Texas and Florida have experienced the largest gains.??

6. Carbon-free power production footprint gets bigger

U.S. electricity production from carbon-free resources, TWh

Carbon-free resources accounted for about 38.5% (1,620 million MWh) of all electricity produced in the U.S. in 2022—up slightly from 37% in 2021. Nuclear is by far the largest source of carbon-free power in the United States. Based on preliminary statistics for 2022, nuclear power plants accounted for 47.7% (772 million MWh) of all carbon-free electricity production in the country. There are currently 95 reactors operating in 29 states that produce about 18% of the nation’s electricity. Wind contributed 26.9% (about 435 million MWh), hydro 16.5% (268 million MWh), and solar 9% (145 million MWh) of all carbon-free resources. Driven by the recently enacted IRA, expect zero-carbon resources to garner an increasing share of the fuel mix as the energy transition continues.

7.?Solar and wind march on

U.S. wind and solar electricity production (MWh) and % of total production

In 2022, wind and solar accounted for approximately 14% of total U.S. power production, up from about 12% in 2021 and 11% in 2020. Driven mostly by the 10-year extension of key tax incentives, the new IRA will spur continued wind and solar capacity development growth. To make that capacity produce energy around the clock, however, there needs to be a tremendous investment in the power grid, including transmission, energy storage, and other grid-enhancing technologies. The good news is that the new law has plenty of incentives to support these efforts, as well as offshore wind, electric vehicle charging, and other grid energy transition needs.

8. May heatwave illustrates the balance of resources needed for reliability

Electric Reliability Council of Texas (ERCOT)

Southwest Power Pool (SPP)

The heatwave that persisted across the North Central states and Texas in May 2022 illustrates the complex and shifting balance of resources necessary to meet electric demand during extreme weather events. The two charts display hourly electricity production by fuel from May 1 through May 21, 2022, for ERCOT and SPP. Both markets have a tremendous wind footprint. In ERCOT, natural gas fills the gaps when the wind wanes and solar is unavailable. The balance of resources is what makes the grid reliable during high-demand hours. In SPP, the combination of coal and natural gas resources balances the relatively large wind contribution. The addition of energy storage technologies will help alleviate the need for dispatchable peaking facilities as more and more coal and older natural gas power plants retire. Maintaining the reliable flow of electricity depends on the balance of resources, including a healthy mix of dispatchable and variable energy.

9. Texas power grid held up quite well through record spring heatwave

ERCOT average hourly electricity demand, May 1-16, comparing 2022 with 2021, MW

ERCOT average real-time hourly (RTH) prices, May 1-16, comparing 2022 with 2021, $/MWh

The strained Texas power grid held up quite well during the unprecedented May heatwave that enveloped the state. Texas grid operator Electric Reliability Council of Texas (ERCOT) issued several operational messages, including calls for conservation. The heat wave elevated both real-time hourly (RTH) and day-ahead hourly (DAH) average location marginal prices (LMPs), but the market avoided forced outages during the heatwave. On May 19, ERCOT reported an all-time electricity peak demand for May—71.2 GW—a figure usually seen during the hottest hours in the summer months. At the time, the all-time ERCOT system-wide peak was 74.8 GW, set in August 2019. That record has since been eclipsed. On July 20, 2022, ERCOT set a new all-time peak of 80,038 MW between 4 p.m. and 5 p.m.????

Traditionally, mild weather in Texas makes the spring “shoulder months” a time for power plant and grid maintenance. However, ERCOT asked nearly all available resources to defer maintenance and stay available as surging demand for air conditioning stressed the system this year. Adding to the strain, on May 13, ERCOT posted a request for conservation when several major gas-fueled power plants were unavailable: During the hour ending at 5 p.m. Central Time, the average RTH price reached $3,439/MWh.

During the first 16 days of May 2022, average hourly demand ran about 25% higher than the same period in 2021, often 20 to 30 GW higher than the previous year’s hourly demand levels. Of the 384 hours reported over the first 16 days of May, only four hours exceeded real-time prices of $1,000/MWh on average and only eight topped $500/MWh on average. RTH prices over the period averaged about four times the average from the same period in 2021. That is to be expected given the higher electricity demand, and it is a strong market price signal that will help drive capacity development decisions going forward.?

10. Grid infrastructure, the great enabler of renewable energy

U.S. electric utility transmission and distribution (T&D) in-service additions, $

According to data compiled by Hitachi Energy’s Velocity Suite research team, since 2012, the cumulative transmission and distribution (T&D) annual plant in-service additions by the nation’s major utilities have been a robust $482.3 billion. Electric plant in-service additions include the original cost of new infrastructure added during the year, making it a great indicator of company investment in the electric grid. In addition, the average annual growth rate (AAGR) has been a robust 7.5% since 2012. In 2022, major utilities across the U.S. spent $64.5 billion on T&D projects.

11. America’s largest electric holding companies spending more on T&D

Top 10 U.S. investor-owned utility holding companies’ T&D in-service additions by year, 2012-2021, $ billions

The top 10 investor-owned utility (IOU) holding companies reported a record $259.7 billion of T&D in-service additions over the past 10 years. That is 54% of the $482.3 billion reported by all holding companies. The average annual growth rate (AAGR) in T&D spending for the group was 7.9%.

Several factors are driving growth in overall spending on new T&D infrastructure, including the replacement of aging infrastructure, the need for new transmission, and the introduction of new distribution grid technology—all to enable the continued growth in renewables and clean energy technologies across America.

12.?Coal power in America continues to decline

U.S. coal capacity additions and retirements by year, GW

For the better part of three decades, from 1985 through 2014, net operating coal capacity in the United States exceeded 300 GW. Today, coal operating capacity is below 220 GW, its lowest level since 1976. By 2030, based on plants currently scheduled for retirement, net operating capacity is expected to dip below 150 GW for the first time in 60 years. Economics, competitively priced natural gas, and a surge in cost-competitive renewables and energy storage projects are driving the decline.

13. Coal and nuclear plant retirements leave a big gap

Michigan electricity production by fuel, MWh

Palisades Nuclear Generation Station (MI) electricity production, MWh

In May of 2022, the 805 MW Palisades Nuclear Generating Station shut down. The plant is in Covert Township, Van Buren County, Michigan. It was commissioned in 1971. Palisades accounted for 6.5% of all power produced in Michigan and 20.4% of all nuclear power plants. Along with the Palisades closure, there have been about 3,274 MW of coal plant closures across the state in the past five years. An additional 2,175 MW of coal shutdowns are scheduled to shutter between now and 2025. These closures will result in a relatively large decrease in state power production in the years to come. The state’s utilities have plans to replace the retired fossil and nuclear capacity with wind, solar, storage, and increased market purchases.

14. Big hurricanes mean big grid damage—2022 was no exception

Hurricane Ian: Florida hourly electricity demand at selected companies from September 23-October 6, 2022, MWh

Massive grid restoration efforts can pay off.

Hurricane Ian was the third most costly tropical storm in world history, estimated at $112.9 billion. Ian made landfall at Cayo Costa Island at 3:05 p.m. Eastern Time on September 28, 2022, as a high-end Category 4 hurricane packing sustained winds greater than 150 miles per hour (mph) with gusts exceeding 200 mph. The chart highlights the loss of load and the rapid recovery by the three largest Florida electric utility companies impacted by the storm. For perspective, note that the difference between the combined peak demand during Hour 16 on September 23 (39,315 MW) and the same hour on September 29 (21,279 MW) was 18,036 MW.

According to Edison Electric Institute (EEI), over the week more than 44,000 workers from 33 states and the District of Columbia were committed to the Hurricane Ian response in Florida. In addition, more than 12,000 workers helped restore power in the Carolinas and Virginia caused by Ian.

15. America’s liquified natural gas (LNG) exports will lead the world in 2023

U.S. monthly natural gas feedstock delivered to LNG export terminals, dekatherms (Dth)

The three major liquified natural gas (LNG) export countries are Australia, Qatar, and the United States. In 2022, each country’s export of natural gas as LNG averaged about 10.6 Bcf/d. U.S. exports increased by nearly 8% in 2022, despite the closure of the second largest domestic LNG export terminal, Freeport LNG, due to a fire. In January 2023, Freeport LNG began to receive feed gas. With the full return of Freeport this spring, the U.S. is in a strong position to become the largest global supplier in 2023. The increased exports of LNG from U.S. liquefaction facilities were key to helping Europe rebuild its gas stockpiles after Russia’s February 2022 invasion of Ukraine. U.S. supply will be in high demand again this year as Russian deliveries to Europe continue to be cut.

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Hitachi Energy Velocity Suite