King Coal losing the crown to natural gas in 2016

The Energy Information Administration (EIA) expects that 2016 will be the first year natural gas-fired generation exceeds coal generation in the United States on an annual basis.

EIA said March 16 that its Short-Term Energy Outlook (STEO) will be the year that natural gas becomes the top source for electric generation.

The March 2016 STEO expects that the combination of market forces and government policies will continue to stimulate the use of natural gas and non-hydro renewables for power generation.

In EIA’s forecast, natural gas provides 33% of generation in 2016 while coal’s share falls to 32%. The expected share of non-hydro renewables increases to 8% in 2016, with hydropower’s share at 6%.

This bit of sober news for coal-fired generation came as two large, publicly-traded coal companies said they were working hard to avoid going into Chapter 11 bankruptcy organization.

Natural gas generation first surpassed coal generation on a monthly basis in April 2015, and the generation shares for coal and natural gas were nearly identical in 2015, each providing about one-third of all electricity generation.

The recent decline in the generation share of coal, and the concurrent rise in the share of natural gas, was mainly a market-driven response to lower natural gas prices that have made natural gas generation more economically attractive, EIA said.

Between 2000 and 2008, coal was significantly less expensive than natural gas, and coal supplied about 50% of total domestic generation.

But beginning in 2009, the gap between coal and natural gas prices narrowed, as large amounts of natural gas produced from shale formations changed the balance between supply and demand in natural gas markets in the United States.

Coal and natural gas generation shares over the past decade have been responsive to changes in relative fuel prices. For example, particularly low natural gas prices throughout much of 2012 following an extremely mild 2011–12 winter led to a significant rise in the natural gas generation share between 2011 and 2012, often displacing coal-fired generation.

With higher natural gas prices in 2013 and 2014, coal regained some of its generation share. However, with a return to lower natural gas prices in 2015 favoring increased natural gas-fired generation, coal’s generation share dropped again.

So far in March, the NYMEX/Henry Hub price for upcoming delivery of natural gas has been below $2/mmBtu, making it hard for coal-fired generation to complete.

Environmental rules also play role in coal’s decline

Environmental regulations affecting power plants have played a secondary role in driving coal’s declining generation share over the past decade, although plant owners in some states have made investments to shift generation toward natural gas at least partly for environmental reasons.

Looking forward, environmental regulations may play a larger role in conjunction with market forces. Owners of some coal plants will face decisions to either retire units or reduce their utilization rate to comply with requirements to reduce carbon dioxide emissions from existing fossil fuel-fired power plants under the Clean Power Plan, which is scheduled to take effect in 2022 but has recently been stayed by the Supreme Court pending the outcome of ongoing litigation.

Beyond the growing market share for natural gas-fired generation over the past decade, coal’s generation share has also been reduced by the growing market share of renewables other than hydroelectric power, especially wind and solar. Unlike the growth of natural gas-fired generation, which has largely been market-driven, increased use of non-hydro renewables has largely been driven by a combination of state and federal policies.

http://www.eia.gov/todayinenergy/detail.cfm?id=25392

 

About Wayne Barber 4201 Articles
Wayne Barber, Chief Analyst for the GenerationHub, has been covering power generation, energy and natural resources issues at national publications for more than 20 years. Prior to joining PennWell he was editor of Generation Markets Week at SNL Financial for nine years. He has also worked as a business journalist at both McGraw-Hill and Financial Times Energy. Wayne also worked as a newspaper reporter for several years. During his career has visited nuclear reactors and coal mines as well as coal and natural gas power plants. Wayne can be reached at wayneb@pennwell.com.