The transition takes shape: Midwest long term outlook H2 2018 (the 'Federal Carbon' case)
The future course of North America (NA) Power & Renewables (P&R) markets is now molded by an ongoing transformation of the energy industry. Wood Mackenzie's 'Federal Carbon' case represents a policy and technology case that attempts to chart the most likely course for the next 20 years. Key assumptions around federal carbon pricing reflect a regulatory environment that is expected to occur, in part, to ensure continued de-carbonization of the energy sector.
More regions looking to price carbon or increase carbon targets in the absence of federal legislation. By 2019 -- upwards of 200 US businesses are expected to reflect carbon pricing for investment decisions, 11 US states subject to some form of carbon price increasing to 12 (Virginia into RGGI) in 2020. All Canadian provinces are subject to a carbon price starting 2019 based on provincial policies or federal backstop prices.
This outlook assumes a similar federal carbon price in the US starting 2028. This serves as a backstop floor price for all states under regional programs. While comparing these prices is not necessarily apples to apples, it is useful nevertheless to outline carbon pricing trends.
2018 loads expected to surpass 2007 levels reflecting more than a decade of lost demand growth in the US. Future demand trends remain heavily leveraged to 'new energies' like energy efficiency, distributed generation and electric vehicles – expected to account for a fifth of electric demand in 2040.
As step function efficiency gains begin to moderate, early signs of an expected demand recovery are now emerging. Even so, the days of 1% p.a. plus growth are not likely to return on a country – wide basis. At least until new end use electrification starts to take off.
(renewables include utility scale and distributed Solar + onshore and offshore wind)
Zero carbon resources accounted for almost 90% of new interconnection queue requests in 2018. Renewables expected to increase from 8% of generation in 2018 to 45% of generation by 2040 (compared to 40% by 2040 in the H1 2018 case)
While utility scale solar and wind are expected to dominate renewable generation, emerging technologies are set to radically increase their market share. Residential and commercial solar is expected to account for 30% of all solar generation in 2040, doubling from today's levels. Offshore wind accounts for 20% of wind generation by 2040, up from negligible levels today.
Utility scale solar
Battery Storage (Grid scale)
150 GW of battery storage capacity by 2040, from negligible levels.
Hybrid Systems (Solar plus storage, Wind plus storage)
Coal retirements: By 2040, Canada has little to no coal capacity left while only 30% of the current US coal fleet survives
Nuclear: Significant nuclear capacity exit post 2032 as many plants reach their 60 year life
Natural Gas: Natural Gas capacity growth continues largely to replace coal and nuclear power plants and to backstop renewables. Battery storage deployment beats out new peakers by a staggering 5:1 ratio
Natural Gas: below $3/mmbtu until 2028, below $4/mmbtu until early 2030s, approaches $5 by 2040
Resource Adequacy: shift away from traditional baseload supply putting strain on existing generation fleet
Power prices – Despite flat prices in the near to mid-term, long term price growth picks up despite continued renewable integration. Carbon assumptions and higher overall gas prices create price recovery.
Tables and charts
This report includes 5 images and tables including:
Figure 3: Battery Cost Forecast
Figure 1: Demand Trends
Figure 2: LCOE ($/MWh) forecast for various technologies
Figure 4: H2 2018 vs H1 2018 Forecast Henry Hub ($2018/mmbtu)
Figure 5: H2 2018 vs H1 2018 power price forecast for selected markets ($2018/mmbtu)