A record year for natural gas-fired power generation in the United States, 2024 saw Lower 48 (L48) power burn average 36.8 Bcf/d, a 1.5-Bcf/d increase year-over-year. Driven by cheap supply, another hot summer, growing load, and retiring coal plants, gas generation reached nearly 1,800 TWh for the year, or over 40% of total L48 generation. While some of the trends that sparked such a banner year for gas generation in 2024 are expected to continue in 2025, others remain up in the air.
Coal-to-Gas Switching
The mild winter of ‘23/’24 led 2024 to have the weakest domestic benchmark gas pricing in a decade, with Henry Hub averaging a paltry $2.24/MMBtu annually. These low prices were passed onto power plant fuel costs, where, amongst the 48% of thermal plant capacity which has reported prices paid, the delivered cost of natural gas averaged only $2.66/MMBtu for January through October, the latest month of EIA reported pricing. On a $/MMBtu basis, this made natural gas cheaper than coal for the first time on a month average basis since at least 2008, boosting gas to average 73% of total fossil fuel generation for the year, a new high watermark. However, gas pricing has made a remarkable recovery over the past month. If the price of Henry Hub remains elevated for 2025, BTU Analytics will be watching to see if coal-to-gas switching moderates or even flips to gas-to-coal switching.
Coal retirements, as they have for the past 12 years, also played a role in 2024’s gas generation growth. Last year, roughly 7.6 GW of coal capacity retired, or around 4% of the L48 fleet. However, this trend is expected to slow for 2025, with only 4.6 GW of retirements slated to occur. This would be the third year in a row that the speed of coal retirements has slowed across the country, as only the stickiest and most economic coal plants are left standing.
All else equal, coupling these two trends creates two potential headwinds for continued growth in gas generation and power burn as natural gas becomes comparatively less economic and fewer retirements force generation to permanently switch to gas.
Large Loads
Despite these headwinds, data centers, one of the hot button topics amongst power market discussions, hold the potential to massively raise load through the U.S. over the next decade. While much of this load is likely to be back-weighted, BTU Analytics estimates demand from data centers to roughly double over the course of the calendar year, with the largest movement seen in the Atlantic Seaboard, Southeast, and Southwest. As the marginal fuel source, gas generation stands to gain the most market share through any increase in load, including that of data centers, particularly as renewables’ intermittent nature cannot keep up with the around-the-clock electricity demand.
Renewable Risks
In 2024, solar had a banner year, with generation increasing a whopping 31% from the year prior off the back of 28.5 GW of utility-scale capacity additions. However, the solar industry may lose some momentum this year. BTU Analytics is currently tracking 25 GW of solar projects under construction with ISDs in 2025. Already below last year’s total, many of these facilities are likely to see their timelines pushed out, as has been the trend amongst recent years. This may be particularly true this year, in which both tariffs set in place by the Biden administration and potentially wider-reaching tariffs from the incipient Trump administration could hamper access to PV supplies in East Asia.
Trends to Watch
While power markets in 2025 will continue some of the trends seen in recent years, it has the potential to buck others. Even though it is not expected to be as hot as the previous two years, 2025 is still likely to wind up one of the hottest years on record, leading to sustained elevated cooling demand across the country. On top of cooling demand, the buildout of data centers nationwide will add another draw to the grid, which must either be met or priced out.
While solar will continue its meteoric ramp in capacities and generation, it may not be enough to offset growing demand, especially given laggard battery infrastructure, leaving more flexible generation sources such as coal and gas to pick up the slack. If the current cold winter fully works off the gas in storage left over from last year’s oversupply, the market could reset pricing back to higher, more normal levels. These higher prices could in turn increase the competitiveness of coal, raising coal utilizations and potentially offsetting slated retirements. However, regardless of the pricing interplay, rising load stands as a boon for continued annual growth in power burn.
This blog post is for informational purposes only. The information contained in this blog post is not legal, tax, or investment advice. FactSet does not endorse or recommend any investments and assumes no liability for any consequence relating directly or indirectly to any action or inaction taken based on the information contained in this article.
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