Natural gas fills the gap as coal drops out of U.S. power market

By Jonathan N. Crawford | Bloomberg | July 4, 2016

Five years ago, opponents of newly proposed clean-air rules sounded dire warnings of blackouts and surging electricity prices if coal-burning plants were shuttered.

Welcome to 2016. Instead of rising, the price of electricity in the nation's largest grid is now 40 percent lower than it was back then, even as a record 346 coal-burning units, producing enough electricity to supply 40 million homes, were retired. The difference: America's shale boom unleashed cheap and abundant natural gas that burns more cleanly than coal.

"You've seen the coal come out of the market and then you've seen a response from industry to capitalize on that hole in the supply mix," said Ethan Paterno, a Denver-based energy industry specialist with PA Consulting Group. "The low gas prices are a big, big deal."

The nation's emergence as the world's largest producer of natural gas has not only sped up the closure of coal-burning plants. It's also put the United States on a surer path to meeting an international accord to slash global warming pollutants and to comply with a host of federal environmental mandates estimated to yield billions of dollars in health benefits.

The mid-Atlantic grid, which stretches from Maryland to Chicago, has been ground-zero for coal-plant shutdowns as the generators compete with gas burners that have access to the cheapest supplies in the country. In that network, the largest in the U.S., about 20,000 megawatts of gas-fired plants are projected to connect by mid-2019, said Paterno, or enough generation to power for about 20 million homes.

The coal closures were driven mostly by the Environmental Protection Agency's pollution rule, which the agency said would cost $9.6 billion annually to implement. The burning of cleaner fuel also produces health benefits, including fewer heart attacks, sick days and up to 11,000 fewer premature deaths annually, worth $37 billion to $90 billion each year, according to the EPA.

More gas-fired generation also helped the U.S. cut emissions of carbon dioxide last year to 21 percent below 2005 levels. The country has set a target to cut greenhouse gases by at least 26 percent below 2005 levels by 2025. Natural gas emits about half as much carbon dioxide as coal when generating power.

The pollution regulation, which requires plants to meet tighter emission limits on mercury and other toxins that can be met with the installation of costly scrubbers, first came into force in April 2015. The rule and cheap power prices resulted in the retirement of 13,000 megawatts of coal-fired generation just last year. That's just a slice of more than 36,000 megawatts of coal capacity that has been shuttered since 2011.

Power producers including Duke Energy Corp. and Luminant Generation Company warned in August 2011 that the coal closures would leave the nation's grid at risk of price spikes and outages, while a U.S. government study projected a boost in prices in parts of the coal-heavy Midwest.

Sen. James Inhofe, a Republican from Oklahoma, said in August 2011 that the EPA was reckless in proposing a rule that threatened to put a "significant strain" on the electric grid from the forced closure of hundreds of coal plants, and which would raise electricity rates across the country.

Wholesale power in PJM's benchmark West hub, which includes deliveries to Washington, averaged $30.08 a megawatt-hour in the first quarter, down 41 percent from $51.17 in 2011.

The transition was smoothed by other factors as well. Milder weather and technologies boosting efficiency, such as energy-conserving light bulbs and refrigerators, have slowed demand.

With consumption stagnant, cheap fuel is an incentive to build replacement plants. Natural gas prices in Pennsylvania, the home of the most prolific shale reserve, plummeted to as low as 59 cents per million British thermal units last year, down from more than $14 in 2008. Gas production has more than doubled since 2012.

The shale boom and coal plant retirements have made the U.S. one of the top three locations for building power plants, along with the Middle East and South Asia, according to General Electric Co.

"Go back five years ago, and I think of the world's gas turbine heavy duty market, very little was in the U.S.," GE Power Chief Executive Officer Steve Bolze said in an interview at Bloomberg's New York headquarters this month. "In the last couple years, it's been close to 15 percent of the global market."

Private equity firm Panda Power Funds is among the companies building gas plants by the Marcellus shale basin to take advantage of the low-cost supplies. The Dallas-based developer anticipates two of its power generators plants in northeastern Pennsylvania, with enough power to serve up to 2 million homes, will start this year.

"What we are experiencing right now is the biggest sea change in the power industry in my lifetime" said Bill Pentak, a spokesman for Panda in Dallas. "Shale gas is helping to drive the change."

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Not sure the rates will stay higher. They are giving around $475 to regular customers not wholesale customers like the City of Alexandria.

I know some CLECO customers on Toledo Bend where $475 would be equal to about 6 weeks on their bill.  As you may imagine, they are not happy with CLECO.

WILL OUR BILLS FOR ELECTRICITY FOR OUR HOMES REFLECT THE LOWER PRODUCTION COSTS WITH NATURAL GAS !!!  MY ELECTRIC BILL IS USUALLY $200 TO $300 DOLLARS PER MONTH !!!

Depends on your electric utility and what fuel they use to generate your electricity.  As I mentioned, my AEP SWEPCO rates (natural gas fueled) are quite reasonable.  CLECO rates (lignite coal fueled)  are higher.   

For my most recent billing period: 5/17 - 6/17 I was charged 10.4 cents per KWH (kilowatt hour).  I used 679 KWH and my bill was for $70.97.  The cost includes every charge on my bill (Rate Billing - $50.70, Fuel charge - 0.030368 per KWH, Federal EAC - 0.000461 and Municipal Franchise Fee - $1.73).

Skip is the fuel charge the amount they are billing you for the natural gas?

Don't know, TD,P.  How many mcf does it take to produce one KWH?  We'd have to get a SWPCO rep to decipher the charges further.  There have been many instances over the years, including before the Stall plant came on line, where I have run across individuals with much higher electric bills but modest size homes served by a company other than SWEPCO.  I'm sure the PSC could provide a comparison of rates for utility companies they regulate.

Cleco has my fuel charge at 0.02643 cents but totaling the whole bill I am paying about 11.4 cents per KWH.

That's only about 10% higher by KWH.  Obviously the size and insulation of a home figure into the cost.  Unless Martha has a 5000 sq. ft. home and keeps it 68 degrees something is up with a $300/month electric bill.

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