Gas vs Coal in the US Power Stack

Eric Fell's picture
Eric Fell, Senior Natural Gas Analyst, Genscape
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The dynamics of gas vs coal generation in the power stack are quite complex. Several factors drive changes in gas and coal generation from day to day with changes in renewable/nuclear output, power demand, weather, grid constraints, power plant outages and regional gas prices all playing a role in determining the amount of gas and coal dispatched on a given day. Because prices are only one of many factors that drive dispatch, quantifying gas vs coal generation as a function of price can look very noisy from day to day or week to week. However, by taking a step back and looking at many data points over time, one can observe two important trends.  

  1. US gas demand in the power stack is highly responsive to gas prices driven by fuel substitution (moving along the fuel switching curve). US gas prices have a non-linear impact on demand, with a steeper demand impact as prices move below $2.25, and a diminishing impact as gas prices approach $5.00. 
  2. The fuel switching curve in the US has been shifting over time, with coal generation shifting lower and gas shifting higher due to changes in capacity (coal plant retirements/conversions and new gas plant additions).

Taking a deeper dive into the Texas regional power market (ERCOT), Genscape proprietary power plant monitor data from 2016-17 clearly shows coal generation in Texas ramps down when natural gas prices in Houston fall below ~$2.25, while the sensitivity of coal dispatch in Texas to gas prices above ~$2.25 is much lower. Genscape proprietary data also shows TX coal generation shifting permanently lower in early 2018 which corresponds to the retirement of 3 large coal plants that took more than 4 gigawatts of coal offline in Q1 of 2018.

Coal generation for summer 2018 was down nearly 100 average gigawatt hours compared to the peak in summer 2007, while total coal capacity has fallen by approximately 60 Gigawatts vs 2007. While reductions in coal capacity are permanently shifting coal dispatch lower, declines in overall coal generation have run well ahead of retirements, which means that underutilised coal is generally available and waiting for the gas price to rally. In the last 10 years, we have seen two significant and sustained spikes in coal utilisation in response to significant and sustained increases in gas prices.

Coal utilisation spiked from 53% in winter 11-12 to 65% during winter 13-14.  In this instance, coal gen increased by 28 AGWH despite a 12 GW decline in overall coal capacity. This was driven by Henry Hub cash increasing from $2.75 to $4.62 (nearly $2 higher).  In the same vein, we also saw utilisation spike from 46% in winter 15-16 to 52.5% in winter 16-17. Coal gen increased that winter by +12 AGWH despite a -12 GW reduction in capacity as Henry Hub cash rallied from $1.97 to $3.00 (approximately $1 higher). 

        

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