Coal drops to lowest proportion of US generation since 1949, but EIA doesn't expect it to last

Dive Brief:

U.S. coal-fired electricity generation fell to 774 million MWh in 2020, dipping below both natural gas and nuclear powered generation, according to an analysis released March 18 by the U.S. Energy Information Administration. Coal has remained the first or second largest source of electricity in the U.S. since at least 1949, according to the administration.
While America's coal generation capacity has declined from 313 gigawatts to 223 gigawatts since 2008, this isn't the sole reason why coal generation hit historic lows last year. According to the EIA, low natural gas prices spurred lower utilization of remaining coal capacity.
With natural gas prices expected to recover this year, EIA anticipates that coal generation will rebound for a time before beginning a slow decline through 2050.

Dive Insight:

Last year may have given the energy industry a glimpse of the future — but it may only be a temporary glimpse, according to the EIA.

Coal-fired generation has fallen 61% since 2008, and fell below nuclear powered generation for the first time in decades last year, according to the EIA. And while current economic and social trends have put downward pressure on coal generation capacity, which has dropped by nearly a third since 2008, the EIA believes the current lows are a result of short-term price trends brought on by the pandemic.

Natural gas prices had already begun to fall in early 2020 before the pandemic began, according to the EIA, due to warmer-than-normal weather in many regions. The sudden drop in energy demand caused by COVID-19 further depressed demand for natural gas, eventually leading to an oversupply of the fuel. At the same time, temporary closures at coal mines and along the coal supply chain caused a temporary increase in prices for that resource.

As a result, according to the EIA, natural gas became far more cost competitive than coal in 2020, prompting a dive in coal utilization.

But these low natural gas prices will come to an end, according to the EIA, as the dynamics set into motion by COVID-19 play out. Natural gas production is falling as a result of low oil and gas demand, and decreased supply alongside increased demand from the electrical sector has begun to nudge natural gas prices upward.

As the price of natural gas continues to rise, EIA anticipates that generators will lean in to their remaining coal capacity throughout 2021 and 2022, increasing coal's share of total U.S. generation before it begins to decline again as a result of additional plant retirements and decreased capacity. EIA analysts expect that coal generation will be cut in half by 2050 — though the extent and speed of that decline, according to administration analysts, will depend on the ongoing relationship between coal and natural gas prices for years to come.