Low natural gas prices and capacity additions drive 2020 power burn growth in the first quarter

EIA’s Hourly Electric Grid Monitor shows that year-to-date natural gas-fired power generation grew in 2020 compared to year-ago levels for the same time period. Natural gas-fired power plants generated a cumulative 301,100 gigawatthours (GWh) of electricity in 2020 through March 18, an increase of 12% compared to 2019 (excluding the additional leap day in 2020). The growth of natural gas-fired generation occurred despite a 5% decline in total electricity generation as a result of a warmer-than-average winter that reduced electric heating demand. This growth was driven primarily by low natural gas prices and capacity additions that occurred in 2019.

Beginning in late 2019, with warmer-than-average winter temperatures and strong natural gas production, the Henry Hub natural gas spot price fell from $2.87 per million British thermal units (MMBtu) on November 7 to an average of $1.94/MMBtu so far in 2020. The relatively low price environment that has persisted for the first three months of 2020 has made natural gas a more competitive fuel source.

As natural gas generation has increased, coal-fired generation has declined by an average of 965 GWh per day in 2020, compared to the same time period last year. Coal-to-gas switching has been particularly noticeable in the Midcontinent Independent System Operator (MISO), which covers much of the U.S. Midwest and part of the Gulf Coast. In MISO, the share of coal-fired generation has typically exceeded the share of natural gas-fired generation during the past two years, aside from infrequent occurrences, such as in October 2019 when natural gas and coal-fired generation shares were equal for a few weeks. However, since the start of the year, the share of natural gas-fired generation has been about the same as the share of coal-fired generation as the Chicago Citygate spot price approached $2.00/MMBtu. Other market forces also influenced the recent changes in the shares of natural gas and coal-fired generation in MISO, such as growth in wind and nuclear generation in 2020.

Capacity additions over the past year have also contributed to the growth in natural gas-fired generation across the Lower 48 states. According to EIA’s Electric Power Monthly, the United States added a net 6,674 MW of new combined-cycle capacity in 2019. The growth in capacity is expected to continue with another net 5,840 MW of combined-cycle capacity planned for 2020.