This is a full report from the North American Natural Gas service (also available with Global Energy Perspectives or a Regional / Industry subscription). Members have access to similar reports.

By a factor greater than 146x, the U.S. Energy Information Administration’s (EIA) latest monthly power data release shows that power plant developers in the gas-rich Appalachian states of Ohio and Pennsylvania are favoring gas-fired power generation technologies over solar photovoltaic (PV) power technologies.

So why is all this new gas capacity piling into the region despite the looming twin specters of state-level demand reduction mandates and aggressive state-level renewable power standards that reward solar PV and wind technologies, but not natural gas? A key part of the answer is that the region’s consumers benefit from the most ample supply and lowest natural gas prices in the nation.

Throwing Shade On Solar

The states of Ohio and Pennsylvania represent a sizable portion (330 Gigawatt-hours or 8%) of the overall 2016 demand for electric power in the nation. And that’s even after falling 0.6% from 2015 levels due to demand reduction mandates underway in the states.

Amid falling demand in a pair of states that represent about 8% of national consumption, why then do Ohio and Pennsylvania represent an outsized 19.3% of the nation’s planned 2017 natural gas fired power capacity expansions? After all, 2017 solar PV and wind additions here are only 0.4% and 7.9% of the national total despite being sited in two of the larger among the 29 states that have active and aggressive renewable portfolio standards.

The “location, location, location” adage about real estate applies to natural resources, renewable and otherwise. Gas is locally available at low prices through the year. Meanwhile, solar PV and wind power resources fluctuate greatly by hour, day and season. These highly intermittent renewable sources of power generation and can only provide maximum output when the optimal sun and wind conditions exist.

If we look at the latest data from the EIA for the utility and independent power producer segments, which now stretches through December 2016, we see that solar power utilization in the two-state region amounted to only 13.1% and 16.8% of the nameplate capacity in 2015 and 2016, respectively. On average for the last two years, the nation’s PV utilization was nearly double at 29.4% vs. a two-year average of 15.0% for Ohio and Pennsylvania.

Wind in the two states fares much better in terms of utilization, which amounted to 35.2% and 36.1% of the nameplate capacity in 2015 and 2016, respectively. On average for the last two years, wind turbine utilization in Ohio and Pennsylvania actually outranked the nation, coming in at 35.6% for the two state area vs. 33.3% for the U.S.

Wind turbines seeking to reap some of the energy in the winds of Ohio and Pennsylvania should fare far better than solar PV panels. But even with that relative outperformance, wind turbines are dilutive to overall power fleet utilization which is led by well-utilized baseload coal (utilized at 51%) and nuclear power plants (utilized >95%). Intermittent wind and solar both act to bring down the two-state average utilization rate to 48.4%.

With state regulations mandating more renewable power, the intermittency of the renewable wind and solar plants requires more reliable power sources to provide primary or backup power to the local region. With federal regulations disfavoring coal power expansion and essentially nonexistent industry appetite to expand uneconomic nuclear capacity, low cost and ample natural gas has become the go-to fuel for power plant developers seeking to invest in new generation capacity in Appalachia.

The Trend Is Your Friend

The trend in Appalachia toward gas-fired power generation capacity growth is buoyed by two key near-term drivers:

  • One is the need to provide backup power for legislatively-favored renewable power plants under operation or construction in the region;

  • The other is the effort to replace legislatively-disfavored coal fired power plants which are facing potential extinction under various environmental rules and regulations including the Clean Power Plan that seeks to reduce carbon pollution from power plants both new and old.

Nuclear power plant retirements are the third longer-term driver that will likely attract both more natural gas and renewable power capacity expansions into these two states.

Even with the Trump Administration’s announced intentions to take a scissors to costly environmental rules or mandates created by the pen of the prior administration, we do believe that the trend toward a preference for lower-carbon energy will continue to roil existing power generation fleets. We recognize the uncertainty over the Clean Power Plan and more at the federal level.

But the renewable portfolio standards and demand reduction mandates are being promulgated by legislatures at the state levels. Perhaps to signal their resistance to anticipated changes at the federal levels, legislators in some states like Massachusetts and California are nonetheless now proposing rules to bar sales of anything but 100% renewable power.

The intensification of the power industry regentrification in these states will likely only be achievable by a shell game that amounts to importing renewable power likely through new long-distance transmission lines from other states (or nations like hydro-rich Canada) that in effect export former power industry emissions and a whole lot of cash from these states across their borders to their trading partners.

Furthermore, customers at the individual, institutional and industrial levels are opting to pay more for cleaner power in many markets. The changes occurring and likely to occur at the federal level will not immediately upend the entirety of the structural and cultural change underway at the consumer market or state levels.

Combined, these trends will likely mean cleaner power amid less regulatory involvement overall. And that will likely allow market economics to skew more electric industry investment toward low cost natural gas power generators.