EIA: Coal to recapture some of the energy market lost to natural gas

EIA coal natural gas Annual Energy Outlook 2013

The U.S. Energy Information Administration predicts existing coal-fired power plants will regain some of the power generation market share lost to natural gas over the past few years as natural gas prices increase.

According to the report, competition between coal and natural gas as fuel for electricity generation is expected to continue in the short term, but because natural gas prices are projected to increase more rapidly than coal prices, existing coal plants should “gradually recapture some of the market lost in recent years.”

“At any point, short term competition between existing coal- and gas-fired generators – i.e., the decisions determining which generators will be dispatched to generate electricity – depends largely on the relative operating costs for each type of generation, of which fuel costs are a major portion,” the report states.

Although coal remains the largest source of power generation, its share of total electricity generation, which was 52 percent in 2003, has declined to 42 percent in 2011 and is projected to be at 35 percent in 2040, according to the EIA.

The EIA notes that natural gas has been “the go-to fuel for new electricity generation capacity” over the past 20 years, with natural gas-fired plants accounting for 77 percent of all generating capacity from 1990 to 2011. Slow growth in electricity demand in spikes in natural gas prices between 2005 and 2008, however, caused much of the added capacity to be used infrequently until 2009, when natural gas prices became relatively low and made combined cycle natural gas-fired plants increasingly competitive.

“In 2012, as natural gas prices reached historic lows, there were many months when natural gas displacement of coal-fired generation was widespread nationally,” the report states.

Because of the “significant uncertainty about future coal and natural gas prices, as well as future growth in electrical demand,” the EIA report studies five different scenarios based on different relative costs between coal and natural gas. Because of the efficiency of combined cycle plants, the EIA states that a typical combined cycle natural gas-fired plant has lower generating costs than a typical coal-fired plant when the ratio of natural gas prices to coal prices is about 1.5 or lower.

In all five scenarios, coal-fired generating capacity in 2025 is less than the 2011 total and remains lower through 2040. In addition, less than 15 GW of coal-fired capacity is added in all five scenarios between 2012 and 2040, although the amount of coal-fired generation capacity that is retired ranges from 38 GW to 73 GW.

Natural gas capacity also ranges across the scenarios depending on the impact of projected fuel prices, with a high of 344 GW of total combined cycle natural gas-fired capacity and a low of 262 GW.

To read the latest release of the Annual Energy Outlook 2013, click here.

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