EIA Forecasts Rising Electricity Demand This Year, Higher Retail Prices
August 12, 2022
by Peter Maloney
August 12, 2022
Electricity consumption will increase this year by 2.4 percent over 2021 levels, before falling slightly, by an expected 0.3 percent, next year, according to the Energy Information Administration’s (EIA) Short-Term Energy Outlook (STEO).
The increase is being primarily driven by increased economic activity and hot summer weather throughout most of the country, the EIA said.
“This summer has been hotter in the United States than normal, even in the context of the pretty hot summers of the last few years,” Joe DeCarolis, EIA administrator, said in a statement. “High temperatures have contributed to more air conditioning load, which is a significant driver in our forecast for more electricity consumption this year compared to last year.”
Most of the increased electricity demand this year will be met with renewable energy, according to the August 2022 STEO. The EIA expects renewable sources to provide 22 percent of U.S. generation in 2022 and 24 percent in 2023, up from 20 percent in 2021.
The EIA also expects solar power capacity to continue to rise, increasing by 20 gigawatts (GW) in 2022 and 24 GW in 2023, representing an addition of 31 billion kilowatt hours (kWh) of electric power generation in 2022 and 41 billion kWh in 2023, the EIA said.
Meanwhile, the United States consumed more natural gas to meet electricity demand so far this summer than the previous five-year average, according to the STEO.
Natural gas consumption in the electric power sector continues to increase as a result of limited switching from natural gas-fired generators to coal-fired generators for power generation, despite elevated natural gas prices, the STEO said. And continued demand for natural gas to generate electricity has contributed to relatively high prices for natural gas, even as more natural gas enters the domestic market, because of the June shutdown of the Freeport liquefied natural gas terminal.
Rising supplies of natural gas have caused prices to fall over the past two months. The STEO forecasts the U.S. will produce 96.6 billion cubic feet per day (Bcf/d) of gas in 2022, which would be 3 percent more than in 2021, and expects dry natural gas production to average 100 Bcf/d in 2023.
Nonetheless, natural gas prices increased by almost 50 percent, from $5.73/ per million British thermal units (MMBtu), on July 1 to $8.37/MMBtu on July 29, because of continued high demand for natural gas from the electric power sector. “We expect the Henry Hub price to average $7.54/MMBtu in the second half of 2022 and then fall to an average of $5.10/MMBtu in 2023 amid rising natural gas production,” the EIA said.
Rising natural gas prices will drive up wholesale electric prices and, consequently, retail electricity prices, according to the STEO, which forecasts the price of residential electricity will average 14.6 cents per kilowatt hour (kWh) in 2022, up 6.1 percent from 2021. Forecasts of annual average wholesale prices for 2022 range from an average of $62 per megawatt hour (MWh) in Florida to $95/MWh in the ISO New England and New York ISO markets, according to the STEO.
And, as coal plant shutdowns continue and natural gas prices fall, the EIA expects coal consumption to decline by 9 percent in 2023. The STEO, however, expects U.S. coal production to increase by 21 million short tons (MMst) to 599 MMst in 2022 and to 601 MMst in 2023 and coal exports to increase from 85 MMst in 2021 to 87 MMst in 2022 and to 98 MMst in 2023.