Analysis: US power mix change points to volatility

Energy Information Administration projections of the changing US power generation fuel mix point to potentially higher volatility in wholesale power prices as baseload nuclear and coal generation declines while natural gas and renewables gain market share.

Coal and nuclear power collectively should account for 57pc of US generation, down from 59pc in 2014, according to the agency's latest Short-Term Energy Outlook . A decade ago, their combined share was 69pc.

Coal's share could drop to 37.7pc in 2016 from 39.1pc last year while natural gas could rise to 28.2pc from 27.3pc. But gas' share in the US total still trails the high of 30.4pc in 2012, when natural gas prices slumped to record lows after a very mild winter.

Solar, wind and other renewable sources could account for 7.9pc of US power generation in 2016, up from 6.8pc last year.

Natural gas prices historically have been volatile and the rising share of the fuel has contributed to volatility in wholesale power markets. New England and New York, which already rely on gas for half their generation, have the highest power prices in North America. California, where renewables in a few years will account for a third of generation, already is experiencing over-generation and real-time negative prices in daytime hours.

Greater volatility is bad news for utilities but not necessarily for their residential consumers, which helps make policy-driven changes in the fuel mix more acceptable politically. Utilities in most states do not have the leeway to immediately pass through rising wholesale costs to consumers.

Wholesale power prices in most US markets last year posted double-digit gains because of a cold winter. But retail rates in 2014 were only 3.2pc higher than in 2013 and could add another 1.1pc this year.

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