Key Takeaways
When the Energy Information Administration (EIA) announced in 2023 that it would not publish its normal Annual Energy Outlook for 2024, and instead would rework the National Energy Modeling System (NEMS), many who rely upon EIA as a neutral arbiter of factual information were worried.
With EIA’s publication of its AEO2025 forecasts, those worries seem to have come to fruition, especially regarding the electric utility sector.
The electricity forecasts in AEO2025 are driven by Biden administration policies, including the Inflation Reduction Act (IRA), which provides extensive taxpayer subsidies for intermittent wind and solar power, as well as other “clean” technologies.
The new NEMS model estimates that natural gas plants equipped with expensive, non-commercially available carbon capture technology can provide electricity at a lower cost than plants without the technology, due to the IRA subsidy for carbon capture.
Utility-scale solar power is forecasted to reach 854 gigawatts in 2050, up from 128 gigawatts today, while utility-scale wind is projected to increase to 602 gigawatts from 154 gigawatts today, driven by extensive taxpayer subsidies and state mandates, which raise concerns about the reliability of the grid.
AEO 2025 retires almost all of the U.S. fleet of coal plants, with less than 1 gigawatt surviving due mainly to Biden’s power plant rule.
EIA offers no market analysis in this year’s AEO — it relies little upon markets and more upon the heavy hand of government policy, which many more scenario analyses could rectify.
On Tax Day, April 15, the Energy Information Administration (EIA) released its Annual Energy Outlook 2025, having taken a year off to rework the National Energy Modeling System (NEMS) so that it could accommodate and represent President Biden’s vast array of subsidies, regulations, and laws. The forecasts show electricity demand increasing by 51% over the 25-year forecast period, an annual growth rate of 1.6%, most likely due to demand from artificial intelligence data centers and Biden’s regulations forcing the electrification of the economy. (The EIA did not provide its usual market analysis with AEO2025, in yet another departure from normalcy.) That demand growth puts pressure on utility companies to add capacity and on system operators to ensure reliability, particularly when Biden policies force intermittent wind and solar power — units that cannot operate 24/7 and which are weather-driven — upon the grid through their massive and unlimited subsidies.
President Biden’s signature climate law, the Inflation Reduction Act (IRA), passed by Democrats in Congress as a Budget Reconciliation bill, serves as the conduit for unlimited tax credits for wind and solar power. With those tax credits embedded in the forecast, the EIA projects 854 gigawatts of solar power in 2050, up from 128 gigawatts today, and 602 gigawatts of wind power, up from 154 gigawatts today, in the electric utility generating sector. EIA adds 109 gigawatts of planned renewable units over the 25-year forecast period, as well as 28 gigawatts of battery storage, which analysts attribute to offshore wind mandates and storage mandates.
EIA’s assumption report for the Renewable Fuels Module provides capacity mandates for battery storage and offshore wind for states with specified requirements for those technologies, totaling 18 gigawatts for battery storage and 43 gigawatts for offshore wind, or 64% and 39%, respectively, of the total planned additions EIA assumes for those technologies. Most of these state mandates are in New York, which has mandated 9 gigawatts of offshore wind development, as well as in New England and the PJM region.
It is safe to assume that these additions may not be credible, as Interior Secretary Doug Burgum has stopped construction activity on New York’s Empire Offshore Wind Project “until further review of information” because the “Biden administration rushed through its approval without sufficient analysis.” The Trump administration could easily withdraw the leases for these units, as the Biden administration has done for mining activities. Offshore wind is one of the most expensive generating technologies that EIA considers in its forecast, three times more expensive than onshore wind, and second only to combustion turbines that are usually peaking plants. As such, the model is unlikely to select offshore wind based on economic principles, so capacity increases must be assumed to be represented in the forecast.
The large increases in wind and solar power are aided by President Biden’s Power Plant Rule, which requires existing and new coal and natural gas plants to add expensive carbon capture and sequestration technology. This results in retiring almost the entire U.S. coal fleet with less than 1 gigawatt of coal remaining in 2050. Due to representing the IRA tax credits for carbon capture in AEO2025, the levelized cost of new natural gas combined cycle plants with carbon capture technology costs 24% less than the levelized cost of those plants without the technology. The forecast has 63 gigawatts of new natural gas combined cycle units by 2025, which are almost all likely to have carbon capture added — a technology that is not yet commercially available, making the levelized cost numbers suspect. It does, however, show the enormous subsidies involved in the IRA, irrespective of their climate impacts, with EIA assuming taxpayers will make something economic with a technology which does not yet even exist for commercial purposes.
EIA ran a sensitivity analysis for the generation sector that excludes Biden’s power plant rule, but it does little to change the outcome of its forecasts. According to the EIA, the Alternative Electricity case assumes the Clean Air Act Section 111 rule implemented by the Environmental Protection Agency in April 2024 to regulate carbon dioxide emissions from new gas-fired combustion turbines and existing coal, oil, and gas-fired steam generating units is not in place. The affected generators are able to operate under rules existing prior to April 2024. In this case, existing coal-fired plants continue to operate without requiring modifications to reduce emissions, and generation from new natural gas-fired combined-cycle units is not constrained based on whether the plant has installed carbon capture equipment.
In this scenario, 59 gigawatts of existing coal units are projected to remain operational in 2050, representing a decline of 70%. However, solar power is expected to reach 809 gigawatts and wind power to reach 559 gigawatts by 2050 in the utility sector, levels slightly below their reference case projections. This scenario assumes the same planned wind and solar units as the reference case described above, and Biden’s unlimited IRA tax credits are incorporated. Natural gas combined cycle additions are approximately the same as those in the reference case. Because the IRA credits remain, the levelized cost of natural gas combined cycle with carbon capture is still less than the cost of natural gas combined cycle without carbon capture, and this forecast adds the same number of units as the reference case. The EIA did not include a case without the IRA tax credits, which would have been helpful as Congress is debating the issue.
EIA is forecasting real electricity prices to decline in the future. In the AEO forecast, real electricity prices in the residential sector start declining immediately and are 4% lower in 2050 than in 2024. Real average electricity prices decline further, 7% by 2050, as commercial, industrial, and transportation sector prices decline more in real terms than residential prices, according to EIA. This seems to ignore the fact that residential electricity prices have increased by 25% under the Biden administration. While a good portion of that increase is due to inflation, there was still a price increase as policies were being implemented to increase wind and solar power through subsidies and regulation. Both consumers and taxpayers paid for the “clean energy” transition that President Biden promoted.
The price declines are also suspect as wind and solar facilities are land-intensive and often far from demand centers, requiring much additional investment in transmission and grid upgrades. The International Energy Agency has projected that the world’s grid must double in capacity over the next 17 years to accommodate growth in wind and solar power.
Conclusion
The AEO2025 electricity forecast indicates that Biden’s signature law and regulations need to be repealed or the United States will witness an unreliable electricity sector that may very well be irreparable. Reliability is not something the NEMS model captures well, particularly in its current form. Having renewable energy, mostly wind and solar power, provide 71% of utility generation in 2050 is not credible, as Europeans are finding out when winds are stagnant, and Californians are finding out when dust and smoke result in less power from solar generators. Furthermore, due to concerns about reliability, there is a queue of solar plants in certain North American Electric Reliability Corporation regions awaiting connection to the grid. So, how quickly can all the huge numbers of planned and projected wind and solar plants be added to the U.S. electric grid without compromising reliability?
As more solar and wind power is added to the grid, it must be sited farther and farther away from demand centers to take advantage of good winds and sunlight, requiring more transmission lines. It is unclear whether EIA’s cost estimates capture this growing cost effectively, particularly when the forecast’s real electricity prices decline over time.
AEO2025 is a disappointment, as it appears to be a political document aimed at supporting a “green energy” transition rather than providing insight into the critically important energy issues facing the United States. To be relevant, it needs many more scenario analyses dealing with the tough issues facing lawmakers today.
