Preliminary Renewables Forecast from AEO 2010 Early Version

The EIA has released an early version of its Annual Energy Outlook for 2010, which provides a wide-ranging multi-decade projection of U.S. energy supply, demand and prices (this year through 2035).  My colleague Laurie Johnson already looked at forecasts for emissions reductions, but AEO is also the most frequently cited domestic energy forecast, and its results (based off NEMS, an EIA designed economy and energy forecast model) are one of the primary drivers of the energy policy conversation. Given this, the AEO perspective on renewable energy generation is always informative.

A few caveats typically accompany those predictions however.  First AEO modeling includes only current legislation, and makes no predictions on future policy.  For example, when the wind production tax credit expires in 2012, AEO makes no assumption for an extension of that PTC. This can lead to distortions in the results and volatile deployment patterns.  Additionally, because it relies on NEMS results, some have argued that AEO has a fairly conservative perspective on innovative/early-stage technologies. Beyond that, there are a number of renewables-specific constraints within NEMS.  (See here for a 2004 powerpoint on the matter.)

However, in spite of this, AEO’s forecasts on energy technology remain invaluable. EIA provides a great overview of this year’s results here.  I've drawn some additional data highlights which are presented below (recognizing that some of you may view the term data "highlights" dubiously. Whatever).

Renewables Projections Mostly Match Last Year’s AEO

    For the first time in several years, there was little change in overall non-hydro renewable generation forecast in the newest AEO (although last year’s "updated" AEO 2009 - released in April to incorporate the outsized impact of the new Stimulus Act – represented an impressive leap from previous forecasts).  The increase in AEO 2010's post-2025 forecast compared to AEO 2009 is driven exclusively by an expansion of biomass generation.  By 2035, non-hydro renewables account for 11.2% of overall generation.     

    Renewables Mix Changes from Wind and Solar to Biomass Over Time

    Deployment of renewables generation will be wind and solar heavy through 2016, and then biomass-centric through 2035.  As seen below, the Stimulus is projected to have a significant impact on wind and solar generation (in terms of annual generation for wind, and annual growth for both), and then taper off quickly as tax credits and other incentives expire.  Without these incentives for wind and solar, from NEMS perspective, biomass becomes the lowest cost technology alternative to meet longer term state renewables mandates and maintains a steady growth rate through 2030. There are a number of reasons for this outcome – most simply, the biomass supply curve used by NEMS is more aggressive in terms of available supply and cost than other models.

    Another way to look at the changing patterns in individual technology deployment, is to compare annual growth rates over time.  Again, as seen below, wind and solar experience significant growth during the next half decade as a result of the clean energy incentives within the Stimulus, but once these incentives sunset, biomass becomes the primary source of renewables growth annually through 2030.

    Biomass and Wind Remain Primary Non-Hydro Generation Sources by 2035.

    By 2035, biomass generation accounts for half of all non-hydro generation (and 5.5% of total generation), and wind another third (and 4.1% of total generation).  

    The data presentation from EIA, provides a different visualization of this outcome, demonstrating how much more growth biomass generation will see compared to other renewables post 2016.

    Natural gas prices are markedly lower than in previous years. 

    One final note with significant implications for renewables forecast - EIA has made changes to its assumptions about the natural gas resource base, leading to significant reductions in the price of natural gas projections from AEO 2009.  While this theoretically reduces the cost of integrating variable generation, it reduces the competitiveness of renewables (based on assumptions of higher cost to fossil and nuclear alternatives. Below, the pink line represents the pricing forecast for AEO 2010 compared to the blue line of AEO 2009.  The yellow line represents the percent difference between the two predictions.