Energy Shots #110:

Inverting the US Power Stack

On Energy Shots #109, we dissected the knock-on effects of seasonal variable renewable energy (VRE) output on regional wholesale power prices. Using data from the Lawrence Berkeley National Laboratory and National Renewable Energy Laboratory (NREL), our analysis showed US independent system operators (ISOs) with a high relative share of VREs in total generation capacity face two common challenges:

1. More power price volatility: high VRE adoption coincides with a higher frequency of negative power price hours (<$0/MWh) and a higher frequency of ‘high’ power price hours (>$150/MWh) compared to ISOs with low VRE adoption. Data does not substantiate conclusions that high battery adoption mitigates wholesale power price volatility from VREs.

2. Seasonally concentrated revenue opportunities: Subsidized VREs’ revenue incentives are not tied to traditional market demand signals. Generating into negative power prices narrows unsubsidized generators’ revenue-capturing windows to peak-demand hours and seasons with low VRE output. Constrained economics 1) decrease investment appetite in new reliable generation and 2) increase reliable generation retirements.

From Existing to Planned Generation Capacity

The challenges outlined in ES #109 are apparent despite a relatively low share of VRE capacity in the US generation fleet — solar and wind capacity represent approximately 8% and 12% of the US’ operational generator inventory through September 2024, respectively.

Meanwhile, two government data sources put volatility challenges from the US’ existing generation stack into context.

Data from the Lawrence Berkeley National Laboratory shows generation capacity in US interconnection queues expanded from 461.5 GW in 2010 to 2,597.9 GW by the end of 2023.

• Wind and solar capacity represented roughly 66% of the capacity in 2010’s interconnection queue. Batteries accounted for 0%.

• Wind, solar, and battery systems represented approximately 95.5% of capacity in interconnection queue by the end of 2023.

Data from the Department of Energy’s Sep 2024 Form-860M generator inventory report shows wind, solar, and batteries account for 86.5% of the planned capacity installations between October 2024 and the end of 2030.

• Despite accounting for 44% of operable US generation capacity, natural gas represents just 11.2% of planned capacity installations before the end of 2030.

A Look At The New US Electricity Generation Mix

Accounting for the generation capacity in interconnection queues calculated by the Lawrence Berkeley National Laboratory and assuming all capacity connects to the US grid, the ‘new’ US generation resource mix nearly inverts from its current configuration.

• Thermal generation capacity from natural gas, coal, and nuclear falls from a ~69% share of total capacity to ~26%.

• VRE capacity from solar and wind (standalone) gains from ~20% to ~30% of total capacity.

• Hybrid VRE/battery and standalone battery capacity gains from 1.7% to nearly 42% of the US’ total fuel mix.

The third point from above stands out — hybrid or standalone power storage capacity would represent 42% of the US fuel mix despite limited utility beyond four hours of discharge. Base load-equivalent power storage remains wholly unproven as an alternative to natural gas-fired, coal-fired, or nuclear thermal generation for applications requiring 24/7/365 steady-state electricity.

Accordingly, anecdotal evidence indicates emerging load growth recognizes BESS limitations and is pivoting to proven sources of reliable generation in natural gas:

• Mitsubishi Power — the world’s top gas turbine supplier — forecasts a 50% increase in global gas turbine equipment orders from an average of 40 GW/year between 2021 and 2023 to 60 GW/year from 2024 to 2026.

Without this market-driven response, the ‘inverted’ US power stack invites a step-change in volatility and revenue unpredictability for US generators and upstream fuel producers.

Readers can request a chart deck behind Energy Shots #110 and send follow-up questions to [email protected].

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.