The EIA Sees Our Energy Future – Which Doesn’t Look That Much Different from Today

Exams finished (I’ve been exercising my brain cells by doing some data analysis and computer courses with the UK’s Open University), so I have at last had a chance to blog.

Let’s kick off with a report I usually try to catch each year: the US government’s Energy Information Administration (EIA)‘s “Annual Energy Outlook 2015“, which looks out to 2040.

If you keep up with media reports, the backdrop to the 2015 Outlook would be something like this:

US oil production has pushed up toward 10 million barrels per day (bpd) and is a whisker away from overtaking Saudi Arabia; five LNG export terminals have been approved and are under construction because the US is so awash with natural gas (due to the fracking boom) that it needs to export it; solar PV panel price falls coupled with efficiency gains have brought the levelised cost of solar PV down so substantially that solar energy is now making a major contribution to electricity generation in an ever-growing number of American states; Texas has become a wind-energy king second only to Denmark; and Elon Musk is bringing power to the people (literally) in the form of a new generation of home super batteries.

Wow, sexy stuff! So I guess we are going to see the EIA predicting radical changes to the energy mix in 2040, especially as many of the trends I just highlighted are only getting started. Right? Let’s look at EIA’s flagship chart (page 17 of the report, click for larger image on all charts):

US Primary Energy Consumption jpeg

So let’s see. Coal is going from 18% to, err, 18% of total energy consumption. The renewable energy revolution is taking renewable from 8% to 10%. Well this isn’t very sexy: renewables were already 7% back in the 1990s. And if you care about climate change, the chart above is a bloody disaster. Looking at coal first:

US Coal Production jpeg

In all the scenarios, coal still play a major role, and in most scenarios coal production actually picks up since the EIA forecasts that natural gas price will firm after 2020 making coal more competitive. The EIA sees no new plants (actually the retirement of the worst polluting plants) but a higher capacity factor at the remaining coal fleet going forward to 2040.

Henry Hub Gas Price jpeg

At this point, we should note that the US Environmental Protection Agency (EPA)‘s Clean Power Plan has the potential to accerlerate change in the energy mix and the EIA recognises this.

The AEO2015 cases do not include the EPA’s proposed Clean Power Plan, which if implemented would likely have a substantial impact on coal use for power generation and coal markets more generally.

The EIA produced a new report in May setting out the impact of the EPA’s Clean Power Plan on its 2040 forecasts. In the chart below we have a variety of scenarios including the original reference scenario from the Annual Energy Outlook 2015 (AEO), the Clean Power Plan scenario (CPP), CPP extended from 2030 to 2040 scenario (CPPEXT) and a CPP plus new nuclear scenario (CCPNUC). The chart on the right adjust these scenario for an environment where economic growth is very high.

Coal Production CPP jpeg
So coal production does come down under CPP, but not drastically. Part of this is due to the price of natural gas. Under the EIA’s original outlook, natural gas prices are expected to trend up from a little over $3 per million British Thermal Units (Btu) today to around $6 in 10 years’ time. If the Clean Power Plan were enacted in 2016, the jump in prices would take place almost immediately. The EIA’s analysis implicitly suggests that an even more drastic cut in coal production could not be met by a substitution into natural gas without natural gas prices (and so electricity prices) exploding higher. So any greater coal cuts would be a tough sell politically due to their impact on end-user prices.

But what of renewables? Don’t they have the potential to become the swing producer? If we compare the reference scenario with the Clean Power Policy scenario then in the former scenario renewables account for 18% of electricity generation and in the latter scenario 27.4%. Obviously, this is a material change—but it is not a transformational change.

US Renewable Share jpegAlso note that the EIA sees no transformational change taking place in the transport sector either. Total net generation of electricity is seen rising from 4,513 billion kilowatthours (kWh) to 5,056 billion kWh in 2040, a relative modest rise of 22% over a 25 year period. But the extra demand is accounted for by the expanding economy, not millions of additional electric cars.

Countering Elon Musk’s musings, the EIA does not see electricity being the energy of choice for moving from A to B. For example, for light duty vehicles (LDVs, mostly passenger cars), the EIA sees only a slight substitution out of gasoline.

LDVs powered exclusively by motor gasoline remain the predominant vehicle type in the AEO2015 Reference case, retaining a 78% share of new vehicle sales in 2040, down only somewhat from 83% in 2013. The fuel economy of LDVs fueled by motor gasoline continues to increase, and advanced technologies for fuel efficiency subsystems are added, such as micro hybridization, which is installed in 42% of new motor gasoline LDVs in 2040. Sales of new LDVs powered by fuels other than gasoline (such as diesel, electricity, or E85) and LDVs using hybrid drivetrains (such as plug-in hybrid or gasoline hybrid-electric vehicles) increase modestly in the AEO2015 Reference case, from 17% of new sales in 2013 to 22% in 2040.

In a previous set of posts on battery technology, I referenced the cornucopian view of technological change (starting here) . Techno-optimists see economics as one long exponential curve. All problems become solvable because disruptive technologies have the ability to grow by double-digits annually whether starting from one percent market share, 10% market share or 50% market share.

The EIA, by contrast, sees a system with considerable inertia and negative feedback loops. For the EIA, changing the energy mix is as difficult as changing the course of a supertanker at speed. As I am worried about the impact of climate change, I hope the EIA’s forecasts are wrong, but I certainly don’t discount them. And I definitely don’t see the painless energy transformation of the techno-optimists. To get where we need to be climate-wise and energy-wise will require tough political decisions and the ability of voters to accept a degree of social change. This is a big topic and I’ll return to it in future posts.

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