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Report: Solar Could Displace Up to 5 Bcf/d for Power Generation by 2020

Solar power is close to accounting for 1% of power generation in the United States and is on pace to reach 4-5% by 2020, but that trend may also displace as much as 5 Bcf/d of growth in natural gas demand in the sector by that same year, according to an analyst with Raymond James & Associates.

In an energy brief released Monday, Pavel Molchanov said that while there was little growth in the use of solar photovoltaic (PV) systems for power generation from the 1990s until 2006, it reached 0.11% in 2012. Solar then doubled to 0.22% in 2013, and doubled again to 0.45% in 2014.

Using data from the Energy Information Administration (EIA), Molchanov said Raymond James projects solar for power generation will double two more times -- to 0.82% in 2015 and 1.52% in 2016 -- before reaching 2.26% in 2017.

According to Molchanov, the trend toward solar is inextricably tied to the federal Investment Tax Credit for solar power. But he estimates the type of solar installations will change when the credit declines from 30% to 10% in 2017.

"This will almost certainly result in a year-to-year decline in incremental solar installations, as compared to the exceptionally high level of 2016," Molchanov said. "But the momentum is such that penetration would continue to rise...As a longer-term 'guesstimate' for 2020, we think that it will be at least 4%, with an outside chance of 5%."

Molchanov said the EIA's rule of thumb is that it takes 0.0101 Mcf of natural gas to generate one kilowatt-hour (kWh) of electricity. Using that metric, the estimated 34 billion kWh generated by solar power in 2015 is the equivalent of 340 Bcf of natural gas, or just under 1 Bcf/d. He said Raymond James, again using EIA data, projects solar will offset around 2.5 Bcf/d of natural gas for power generation in 2017. Under another "guesstimate," between 4 Bcf/d and 5 Bcf/d could be displaced by solar in 2020.

"To be crystal clear, we are not suggesting that utilities are mothballing their gas-fired power plants and deliberately replacing them with solar," Molchanov said. "But it is undeniable that gas would be gaining considerably more share had it not been for the rapid solar buildout..."

"Combined with all the other bearish factors for the North American gas market, we reiterate our view that investors should expect Henry Hub prices to average no more than $2.75/Mcf over the long run."

EIA data and Raymond James research projects about 23.0 Bcf/d of natural gas will be used for power generation in 2015, increasing to an estimated 23.7 Bcf/d in 2016 and 24.4 Bcf/d in 2017. About 27 Bcf/d could be used by 2020, but it could be as high as 32 Bcf/d without solar.

Molchanov said the U.S. lags behind many other countries in terms of solar penetration. He cited three countries -- Italy, Greece and Germany -- where solar PV systems accounted for 7.0-7.9% of electricity demand in 2014, marks well above the European Union average of 3.5%. Solar penetration in the U.S. was comparable to the Netherlands, which was at 0.8% in 2014.

"It comes as no surprise that the U.S. is far from being an early mover when it comes to developing a large solar market," Molchanov said, citing public policy and the additional capital expense for building solar generation capacity in the U.S.

On Monday, Peter Fox-Penner, a principal at the Brattle Group, told E&ETV that solar power could one day account for as much as one-third of power generation in the U.S.

"There are lots of dynamics [for the rise of solar]," Fox-Penner said. "We know that there's enormous and good pressure to decarbonize our electric system...We have the Clean Power Plan here in the U.S. That's going to be a big driver for renewable energy, not just solar, but all forms of renewable [energy]."

Earlier this month, the International Energy Agency released a report that said an additional 65-70 megawatt hours of solar PV systems for power generation are to be commissioned in the U.S. from 2015-2019.

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