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October 26, 2021
US Electricity Mix – A Grid in Transformation
We often make the point that renewables can produce a superior security of supply for electrical grids, reducing the need for imported commodities with historically volatile prices. Combined with this powerful argument is the fact that solar PV has become the most price competitive energy source (and will become cheaper as production scales up), and it is game over for unstable, expensive, and carbon emitting fossil fuel sources. The problem, as we know, is that renewable energy is not dispatchable. The missing link in the renewable equation is therefore the ability to store electricity produced from renewable sources to be used when the sun is not shining and the wind is not blowing.
In this article we explain how we used the findings of the Solar Futures Study to project the sources of electricity for the US grid to 2040. The US Department of Energy (DoE) modelled the potential role of solar in decarbonising the US electric grid by 2035 (vis-à-vis 2005 levels). High deployment rates would be required for solar, wind and energy storage. We also show the findings of Lazard’s most recent Levelized Cost of Energy (LCOE, version 14.0) and Levelized Cost of Storage (LCOS, now in version 6.0), because the holy grail for the energy transition is to build affordable and reliable clean energy storage solutions.
The US Grid to Go Through a Massive Shift
According to the Decarbonization with Electrification scenario in the Solar Futures Study by the US DoE, renewable energy and storage technologies are to benefit from further cost reductions (LCOE for solar PV to go from $46/MWh in 2020 to $20/MWh by 2030). This is the main rationale for replacing first coal fired power plants and subsequently gas fired power plants with solar (and wind). We used the historical electricity generation by source of energy compiled by the International Energy Agency (IEA) as a starting point. In 2019, the total generation in the US amounted to 4,366 TWh and natural gas was the main source of electricity (at ca. 38%), followed by coal (at ca. 25%), and nuclear (at ca. 19%). Solar in 2019 represented less than 3% of the electricity sources and wind ca. 7%. We extrapolated the electricity needs from 2019 using a 1.7% CAGR for the 2019/2030 period, followed by a 2.1% for the 2030/2040 period. The annual generation share percentages as modelled by DoE in the “Decarb + E scenario”, gave us data points for 2035 and 2050. In 2035, DoE estimates that over 42% of all the US electricity could be produced by solar PV (both utility scale and behind the meter), followed by wind (at roughly 36%). By 2035, natural gas would represent less than 5% of the electricity sources and coal would be below 1%.
We interpolated the annual figures based on the key milestones, stopping in 2040. Electricity from coal sources goes through a steady annual decline, until reaching less than 1% of all electricity sources by 2040; natural gas as a source of electricity peaks in 2030 and declines steadily until representing ca. 5% of all electricity sources in 2040. We model solar as reaching 42% of the mix by 2040 and wind representing 36% but also by 2040. To better visualise the evolution of the electricity mix, we put together the annual estimates in a “race chart”, that can be seen here.
Annual Electricity Generation Share in the USA – 2020 to 2040
In our exercise, the grid becomes predominantly green in 2031, the year when solar + wind would generate more electricity than coal + natural gas. By 2040, wind + solar would reach ca. 78% of all electricity produced (as opposed to 2035 as per the Solar Studies).
LCOE is the Driver & LCOS is the Enabler
The Solar Studies “Decarb + E” scenario is a >10x growth story for solar (from 2020 to 2035, a ca. 11% CAGR), and a >100x growth for clean energy battery-based storage. As shown in the table below, US battery capacity is to grow from 3 GW capacity in 2020 to 374 GW in 2035 (a ca. 21% CAGR). The DoE estimates capex for storage costs to drop from $1,200/kW in 2020 to $600/kW in 2030, benefiting from another 50% reduction by 2050, when it would reach $300/kW in capex cost.
“Storage is an essential technology for the cost-effective and massive PV deployment envisioned in the Solar Futures Study”
The investment bank Lazard has estimated LCOE and LCOS for many years, becoming a reference for updated figures. The table below, from their most recent LCOS assessment, summarizes all current technologies and applications for clean energy storage.
Energy Storage Technologies & Applications
Unsubsidized LCOS in $/MWh
At iClima we are focusing our research on understanding the likely winners in Behind the Meter (BTM) and In-Front of the Meter (FTM) storage solutions. For example, EV batteries can be treated as sources of reserve capacity and grid flexibility in V2G solutions. The future cost for the different storage solutions is a key element in understanding the speed and depth of the energy transition. Stay tuned!