ES #126: The Five Year Lead Time for New Gas Turbines

Energy Shots #126:

Industrial electrification and the electricity needs of emerging technologies like EVs, robotics, and AI have fueled forecasts for a step-change in U.S. power demand growth over the next decade, raising concerns about inelastic generation infrastructure and its knock-on effects for grid reliability and costs.

While the Trump administration’s first six weeks in office have shown a drastic shift towards pragmatic policies that leverage and support American energy abundance, the speed with which these policies a) invite reliable generation investment and b) unburden infrastructure development remain unclear.

Energy Shots #126 looks at two recent data points that reflect ongoing inelasticity in the U.S. generation resource mix:

• The latest data on planned changes to the U.S. generation mix for 2025-2027

• Gas turbine manufacturers’ order backlogs and expected lead times

Reliable Retirements, Intermittent Installations

According to the Department of Energy’s February 26 form-860m generator inventory report, the U.S. grid will lose nearly 14 GW, 8.5 GW, and 13 GW of power generating capacity to planned retirements in 2025, 2026, and 2027, respectively.

• The 35.4 GW of planned capacity retirements between 2025-2027 represents approximately 2.8% of total U.S. generation capacity in 2024.

• Coal, natural gas, and petroleum-fired units account for 99.8%, 99.8%, and 98.8% of capacity retirements over each of the next three years.

Meanwhile, planned capacity growth shows a similarly concentrated mix of solar, wind, and batteries that will replace thermal generation retirements.

• Solar, wind, and batteries account for 91.9%, 92.2%, and 88% of the planned generation capacity for each of the next three years, respectively.

• U.S. solar capacity is expected to grow by over 29.5 GW in 2025 versus +4.8 GW for natural gas-fired generation. Between 2025-2027, U.S. solar capacity will grow by 95.2 GW versus +25.1 GW for onshore/offshore wind, +54 GW for batteries, and +16.5 GW for natural gas.

Current plans for U.S. generation capacity reflect the lagging effects of Inflation Reduction Act subsidies that could be revisited, amended, or revoked under the second Trump administration.

While the Trump administration’s evolving actions could ease hurdles to new dispatchable thermal generation, the consequences of anti-gas energy transition regulations continue to permeate across global equipment supply chains.

Inelastic Manufacturing Capacity

Leading gas turbine manufacturers GE Vernova, Siemens, and Mitsubishi reported an unprecedented surge in demand for new units in 2024 that extended lead times to as far out as 2030.

As noted by Siemens Energy North America President, Rich Voorberg, at POWERGEN International earlier this year, “Gas turbines were dead in 2022…[Now,] we can’t make enough gas turbines to support this market.”

Similar sentiment was shared by NextEra CEO John Ketchum in the firms 4Q24 earnings call, with Ketchum stating that new gas projects “won’t be available at scale until 2030, and then only in certain pockets of the U.S.” Ketchum went on to say, “The country is starting from a standing start… This is an industry that really hasn’t seen any active development or construction in years.”

According to Takao Tsukui, Executive VP of International Sales at Mitsubishi Power, annual worldwide orders of gas turbine equipment are expected to increase 50% from 40 GW between 2021-2023 to 60 GW per year between 2024 and 2026.

Similarly, GE Vernova’s investor figures show gas turbine equipment orders increased 66% from 41 turbines in 2023 to 68 turbines in 2024, representing approximately 20 GW of capacity or 2x the company’s 2023 order book.

Looking Ahead

Price, reliability, and volatility risks from inelastic supply chains and insufficient dispatchable generation show increased upside skew between 2025 and 2032.

• An outsized share of intermittent generation in the U.S. capacity queue elevates the likelihood of insufficient supplies when wind and solar suffer extended outages that surpass the technical limits of short-duration power storage.

• Intermittent seasonality remains a significant challenge for the economics of thermal generation as strong seasonal renewable output increases the frequency of negative power price hours.

• Similarly, steepening net load ‘duck curves’ in solar-rich regions will increase the cycling stress placed on gas-fired generation, elevating risks for unplanned outages and unreliability.

• Benefits garnered from reduced regulatory friction could be offset by supply chain bottlenecks that slow manufacturers’ ability to satisfy demand for new gas turbines

See you next Sunday.

ES.

This commentary contains our views and opinions and is based on information from sources we believe are reliable. This commentary is for informational purposes, should not be considered investment advice, and is not intended as an offer or solicitation concerning the purchase and sale of commodity interests or to serve as the basis for one to decide to execute derivatives or other transactions. This commentary is intended for Mobius clients only and is not considered promotional material.