EIA: Natural gas, coal power expected to temporarily converge

Source: U.S. Energy Information Administration

The Energy Information Administration’s (EIA) most recent Short-Term Energy Outlook forecasts that the amount of electricity generation fueled by natural gas in April and May will total just 3.5% less than the projected amount of coal-fired generation. This convergence has occurred only once before, in April 2012, when natural gas fueled just 1.5% less generation than coal. Power generation from the two fuels is expected to rise at similar rates over the next couple months, and then diverge again later in the summer as demand rises and coal unit capacity utilization continues to rise.

Natural gas-fired generation has been rising over the past few months, as the cost of natural gas has fallen to levels not seen since 2012. These low fuel costs have made natural gas combined-cycle generating units in some areas of the country cheaper to operate than coal-fired plants. The increase in natural gas-fired generation has largely come at the expense of coal generation. Generation from both fuels generally falls during the spring months as power plant operators take units offline for maintenance when electricity demand is relatively low.

The convergence is not expected to last, as EIA forecasts slowly rising natural gas prices through the rest of the year. Prices at the natural gas benchmark Henry Hub are forecast to reach an average of $3.13 per million British thermal units (MMBtu) by the fourth quarter of 2015, up from an average of $2.90/MMBtu in the first quarter. Rising natural gas costs and the return of coal plants after spring maintenance will likely increase the level of coal generation. Overall, EIA expects coal to account for an average of 36% of total U.S. generation in 2015 and natural gas to account for 31%.

A contributing factor in the declining share of coal generation is the recent retirement of some coal-fired power plants. These plants are shutting down as power generators respond to the sustained competitiveness of natural gas prices and to the Mercury and Air Toxics Standards (MATS) regulations. In addition to 4.1 gigawatts (GW) of coal capacity that was retired last year, plant operators have retired or plan to retire 12.8 GW of coal capacity in 2015.

These retiring coal plants are generally smaller units that have typically operated at lower capacity factors in recent years. In 2014, the average capacity factor for all coal units was 61%, but the subset of coal units retiring in 2015 had an average capacity factor of just 36%. The coal capacity retiring in 2015 accounted for 1.6% of total U.S. generation during 2014.

Principal contributor: Tyler Hodge

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