This is an extract from a recent report “Electricity 2024: Analysis and forecast to 2026” prepared by IEA. In this extract we specifically focus on the Americas.
Strong growth in renewable power increasingly displaces fossil-fired generation. Electricity demand is estimated to have declined by 0.4% in 2023, largely because of fall in US demand due to milder weather bringing down the average. By contrast, Brazil and Mexico posted robust demand growth. From 2024-2026, the report forecasts electricity demand to increase on average by 1.7% per year in the region. Renewable generation is forecast to grow annually by 7% on average over the outlook period. The increase in renewables is set to more than offset the additional electricity demand and displace coal-fired generation, which is expected to record a substantial 10% decline on average from 2024-2026. The United States dominates these developments, where around two-thirds of the electricity in the Americas is produced and consumed. Due to strong growth in renewables, the share of fossil fuels in electricity generation is expected to fall from 50% in 2022 to 44% in 2026. Emissions of electricity generation in the Americas are set to decline by 4% per year on average over the forecast period, and its emissions intensity will fall to 235 g CO2/kWh in 2026, down from 280 g CO2/kWh in 2023.
United States
Milder weather led to lower electricity demand in 2023, but growth resumes as electrification accelerates to 2026. Despite the US economy growing at an annualised rate of above 3% in the first three quarters of 2023, including 4.9% in the third quarter, electricity demand declined by 1.6% for the year compared to growth of 2.6% in 2022. Electricity use was curbed due to milder weather across many parts of the country compared to 2022 in both the summer and winter months, reducing heating and cooling demand. In addition, manufacturing activity fell despite growth in the overall economy, amid a drawdown of inventories, strikes in the automotive industry and overall inflationary pressures.
From 2024 to 2026, the report expects a return to growth in electricity demand of 1.5% on average, fuelled by increased manufacturing activity and electrification in the transportation and building sectors. Around one-third of the additional demand out to 2026 is expected to come from the rapidly growing data centre sector alone. Projects supported by the US government’s 2022 Inflation Reduction Act (IRA) and the Bipartisan Infrastructure Law (BIL) through special financial vehicles, grants, tax credits, loan guarantees, among other incentives, are assumed to accelerate over our forecast period. These initiatives enable households and commercial businesses to monetise IRA tax credits, loans and rebates for the installation of electric heat pumps, water heaters, and other energy saving electric appliances.
The IRA and BIL supported significant investments in the power sector, with USD 110 billion for clean energy manufacturing projects, of which more than USD 70 billion was for the electric vehicle (EV) supply chain as of August 2023. A further USD 125 billion has been awarded for clean energy generation projects. As of November 2023, the BIL awarded funding for 44,000 major infrastructure projects across the 50 states, including spending on electricity grid reliability and resilience. The IRA also launched the Energy Infrastructure Reinvestment (EIR) Program (section 1706) that guarantees loans for projects that aim to retool, repower, repurpose, or replace energy infrastructure or to improve the efficiency of existing energy infrastructure.
Gas gained at the expense of coal, while renewable output was below average in 2023. Gas-fired generation increased by 6.4% in 2023 compared to 7.3% in 2022, as prices tumbled. Gas prices declined steeply at the benchmark Henry Hub in 2023, from around USD 6/MBtu in 2022 (the highest level since 2008) to a low of USD 2.15/MBtu in May 2023 due to strong growth in domestic production and mild weather. The rise in gas-fired generation came largely at the expense of coal-fired generation, which declined by 7.7% in 2022 and 19% in 2023 as the decrease in the cost of gas encouraged fuel switching. The share of gas in the electricity mix reached a record of 42% for 2023, while coal declined to 17%. This continues the long-term trends for both fuels, as gas and coal’s shares were 24% and 40%, respectively, in 2011.
Growth in renewables generation was muted by unfavourable weather conditions, particularly for wind, despite significant new installations. Wind generation was almost the same in 2023 as in 2022 despite an increase of around 8 GW of capacity. In addition, output from hydro power plants was down 4.4% as rapid spring snowmelt caused by record high temperatures in the Northwest depressed output in the region, which accounts for around 50% of US hydropower capacity. Solar PV generation increased by 16%, driven by new installations at both gridscale (26 GW) and distributed generation (8 GW) levels.
Solar PV and wind generation are set to surpass coal-fired generation in 2024, marking a milestone. Installations of wind and solar are expected to increase renewable generation by around 10% annually between 2024 to 2026, although financing and supply chain issues are causing delays and cancellations of some projects, particularly for offshore wind. Solar and wind generation are expected to surpass coal-fired generation in 2024. Coal output is expected to fall by almost 10% per year over the 2024-2026 period as retirements continue, although at a slower pace than seen in 2022-2023. Gas output will be mostly unchanged, as new capacity additions will replace retiring units and moderately low gas prices will keep the variable cost of gas-fired generation competitive with coal. As a result of the increase in renewables and decline of coal, total power sector emissions and emissions intensity are expected to decline at annual rates of 4% and 5%, respectively, between 2023 and 2026.
A large portion of the United States is at elevated risk of insufficient electricity supply during peak winter conditions according to the North American Electric Reliability Corporation (NERC), as reserve margins have declined in many areas. Load forecasts also become highly uncertain and complex, and underestimating demand is cited as a reliability risk. Wide area events like Elliott would reduce transfers from neighbouring regions.
Canada
Electricity demand returns to growth in the 2024-2026 outlook, with higher gas-fired generation to offset the fall in nuclear In Canada, a milder winter offset a warm and dry summer, contributed to a decline in electricity demand of 1% in 2023. Hydropower, which contributes more than half of electricity supply in the country, fell by almost 7% due to reduced supply from snowmelt as a result of the mild winter. This in turn caused Canada to reduce electricity exports to the US by around 15% from Quebec and 30% from British Columbia in the first half of the year.
Nuclear generation is expected to increase by around 4% in 2024 before falling by around 10% in 2025 and 16% in 2026 as additional units will be taken offline for the ongoing refurbishment programmes at Bruce (6.2 GW) and Darlington (3.5 GW) nuclear stations.
The decline in nuclear output is replaced by a combination of gas-fired generation and renewables. As a result, overall emissions from electricity generation are expected to rise by 6% in 2025-2026.
Mexico
Hydropower generation fell to record lows in 2023 due to drought, pushing up oil and gas-fired output. In 2023, electricity demand in the country grew at a rate of 3% y-o-y, closely following the economic growth rate of an average 3.2%. Strong growth in the industrial sector, services industry and agriculture all combined to boost power demand. We expect that electricity demand will maintain stable growth of 2.5% for the period 2024-2026. This is a lower overall annual growth rate than that seen in the past two years as the country was rebounding from the effects of the Covid-19 pandemic, however, it will still closely follow economic activity in the country.
Electricity demand and economic growth will be supported by a requirement for a higher percentage of regionally commercialised products to be manufactured within the region (regional value-content requirements) in the US-Mexico-Canada Trade Agreement (USMCA), and nearshoring. Nearshoring is a strategy in which companies move part of their production closer to the final consumer, thereby reducing costs and logistical setbacks. The impact of nearshoring will likely unfold gradually in coming years, and steadily increase electricity demand in the forecast period. Hydropower makes up about 40% of Mexico’s renewable energy supply and is an important source of generation during the peak summer season, as well as providing flexibility and backup power when other sources of generation are disrupted.
Despite higher electricity demand, the cumulative annual hydropower generation in 2023 was more than 40% lower than that for 2022 and 2021, and 9% lower than that of 2019 – the year with the lowest hydropower generation in recent history. The available alternatives to cover the reduction in hydro generation require more expensive fuel sources, such as natural gas that is mainly imported, diesel or fuel oil, which could ultimately result in higher electricity production costs.
In 2023, the emissions intensity of the power sector rose by about 4% y-o-y, reaching 446 g CO2/kWh due to lower hydropower generation. An increase in natural gas, nuclear, solar and wind production combined to substitute for the loss of hydropower. The growth of solar and wind in Mexico are expected to be limited to those projects previously committed in auctions, which were halted in 2019. These projects will push the share of solar and wind in total electricity generation from 10% in 2023 to 13% in 2026. Along with increased solar and wind power, gas-fired generation falls from 59% to 57% while coal’s share declines from 7% to 6%, which combined lead to a reduction in power sector emissions intensity of almost 3% per year for 2024-2026.
Brazil
Solar and wind output rise by a combined 50% in 2026, and new transmission lines are set to transform the power sector. Electricity demand in Brazil rose by about 4% in 2023, compared to 2.7% in 2022, largely reflecting robust economic activity and higher consumption in the buildings sector. The largest absolute growth in 2023 came from the northern subsystem, due to higher average temperatures and increased electricity access.
Capacity factors of hydropower in Brazil had fallen from an average 56% in 1990- 2021 to 42% in 2017-2020, and to a record low 38% in 2021 – its lowest level at least since 1990. Severe droughts in 2021 had caused water shortages and power cuts. In 2023, hydro capacity factor was again about 44%, with generation increasing by 1%. At the same time, gas-fired generation declined by 10%, whereas coal-fired output increased by 10%.
Electricity demand in Brazil is forecast to increase at an average 2.5% per year in 2024-2026 compared to 2.2% over the 2018-2023 period. Growth is supported by continued brisk economic activity and higher residential consumption. The rural electrification programme Luz Para Todos (Light for All), which has benefited over 18 million people since its creation, celebrated its 20th anniversary in November 2023. It will include up to 2 million more people by 2026, providing an additional boost to electricity demand growth.
Out to 2026, we expect most of new electricity demand in Brazil to be met by wind and solar PV. In our forecast, combined wind and solar PV generation in 2026 will be almost 50% more than that of 2022, reaching over 200 TWh, and achieving a combined generation share of almost 30% (up from around 20% in 2023). With this, total renewable generation in Brazil will account for about 95% of the electricity mix in 2026.
Complementary to grid expansion, electricity storage has been considered an enabling solution for higher wind and solar PV integration. For instance, in March 2023, the first large-scale battery system (30 MW/60 MWh) in Brazil was deployed in the State of Sao Paulo for grid reinforcement. In October 2023, the electricity regulator opened a consultation on regulatory solutions for the grid connection of storage systems, with topics under consideration such as the definition of the grid capacity to be contracted by storage systems and the network usage tariffs. Other announcements on grid development in 2023 are set to transform Brazil’s power sector in the coming years.
Other Americas
Electricity demand in Chile in 2023 rose by less than 1% year-on-year, mirroring flat economic growth. A highlight in 2023 was the record share of more than 60% of renewables in the electricity mix. Hydropower output was around 10% above the 2018-2022 average. Additionally, solar PV and wind provided around one-third of generation in 2023, reaching hourly shares of over 70% in the national power system in more than 30 hours throughout 2023. For the 2024-2026 period, the report expects an average growth in demand of 2.4% per year. The corresponding rise in electricity demand will be more than met by increased solar PV and wind generation, which combined are expected to rise by around 15% per year on average, based on the current pipeline of projects. This would push both gas and coal-fired generation down rapidly, to around one-third of the 2023 level in 2026, bringing power generation emissions intensity below 100 g CO2/kWh. Chile has a coal-power phase-out plan by 2040 at the latest.
In Colombia, electricity demand grew by around 3% year-on-year in 2023, below the post-covid rebound rate of 4.7% in 2022. The impacts of the El Niño Southern Oscillation, the cycle which began in May 2023, threaten to reduce hydropower generation until around May-June 2024. In November, Colombia, which relies heavily on hydropower at about 70% of its annual electricity generation, officially announced the start of El Niño in the country, with the potential for much higher temperatures and droughts, warning this can potentially lead to higher electricity prices and stronger electricity demand from increased cooling needs. This weather phenomenon typically reduces rainfall in Colombia, leading to drought conditions which can severely affect water supplies, impacting hydropower generation. Wind and solar PV still only account for under 2% of generation.
Costa Rica’s electricity demand rose more than 2% in 2023, in line with economic growth. The impacts of El Niño led to lower hydropower output over the year, resulting in thermal generation to account for more than 5% of the 2023 electricity mix – moving Costa Rica’s power system away from its typical renewables share close to 100%. Concerns over demand-supply imbalances during the summers of 2024-2026 related to uncertainty over hydropower output have emerged. In 2023 the government of Costa Rica also focused on market and regulation reforms. In October, a proposed law (project 23 414) seeks to increase competition in the electricity market, harmonise the regulatory framework and create an independent system operator, among other measures.
Access the complete report here
