A huge build-out in wind and solar this year threatens power-generation demand.
New wind farms will add 16 GW of capacity, and solar, 8 GW, compared to just 4 GW for gas, between April and December this year. That sounds daunting for gas, and we do believe it could impact gas demand by 1 Bcf/d, but utilization rates will keep renewables from obliterating gas demand next year. After adjusting for typical utilization rates, wind and solar combine for about 7 GW.
The chart above shows cumulative additions for gas, wind, and coal plants, starting in April 2020. The underlying data are from EIA.
At a utilization rate of 30%, new wind farms planned for this year would add 4.72 GW of generation. Because wind blows around the clock, this generation displaces some inefficient gas plants during the day (less need for the “peaker” gas plants) and efficient gas plants at night (the “baseload” units). But not all that 4.72 GW would displace gas alone. Coal units would also be affected. We estimate around 0.5 Bcf/d of gas demand would be lost due to the new wind turbines.
Solar capacity displaces daytime demand for natural gas, and it packs a punch. Because solar tends to be the most productive when intraday temperatures are highest, the addition of a solar plant displaces the big natural-gas consuming “peaker” generators. This part of the market is also not where coal typically is dispatched. Therefore, solar’s effect on gas is a greater displacement than is wind. We anticipate another 0.5 Bcf/d from solar displacement.
The combined demand losses from renewables are one reason why AEGIS has only a moderate bullish outlook for 2021. Supply, we believe, will diminish as time goes by. But losses in the power sector offset some of the bullish supply-side effect.
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