Coal's decline driven by technology, market forces – not policy
Market forces
Between 2007 and 2015, shale gas prices dropped almost in half, positioning natural gas to outprice coal mined in four of the five U.S. coal regions. It shows the benchmark gas prices (“Henry Hub” prices) in the past four years to be cheaper than the coal of the two regions in Appalachian for over 88 percent of the months. Further, gas has been cheaper than the coal of Appalachia, Illinois, and the Rockies for over 57 percent of the months. Even the cheapest coal, in Wyoming’s Powder River Basin, competes poorly in the great population centers east of the Mississippi once rail transport of $0.03 per ton-mile is considered.
That prompted investment in pipelines and gas storage infrastructure that have made gas even more competitive.
The authors examine in depth the hard data available from (1) the U.S. Energy Information Administration, (2) academia, specialized energy consultants, and Wall Street analysts, and (3) the publically available information of the electric utilities and gas industry. The authors conclude that natural gas will likely maintain a price advantage over coal into the foreseeable future, and that both lessening prices and the Renewable Portfolio policies of three quarters of America’s states (rather than federal policy), will hasten the encroachment of wind and solar as replacements for coal.
Technology
While the Heat Factor (an efficiency metric) of coal-fired power plants has largely remained constant, intensive R&D in combined-cycle gas turbines (CCGTs) is leading to Heat Factors that are 40 percent better than coal-fired generators. Additionally, CCGTs offer superior generator nimbleness in the face of changing demand and outages, an advantage in grid reliability that is important to the nation, and can translate to increased dollar incentives for the utilities.
As for gas supply-and-demand — it is not likely to be under pressure. Technology advancements in shale-field geology and gas extraction have increased accessible shale-gas reserves at a rate exponentially faster and cheaper than gas is currently being extracted. The authors do examine three main forces that could test such technological excellence in the future:
- A significant increase in the share of production going to power plants,
- A significant increase in the share of production going to export, and
- Curtailment in production because current prices continue to trend at too-low a level to be broadly profitable.
They conclude that extrapolations of available data — and supportable excursions in those extrapolations — are unlikely to change the dynamics of coal versus gas. Further, the pressure on coal from renewables will likely increase as the levelized cost of electricity (LCOE) for solar continues to drop, already down by 68 percent since 2010, and the LCOE of wind continues to drop, already down 51 percent since 2010.
“If you’re a power plant operator and you see gas supply is continuing to increase and natural gas can do the job cheaper — by a lot — the decision to switch from coal is pretty easy,” Culver said. “As we look toward the future, we see no natural mechanisms that will permit coal to recover,” he added.
— Read more in Walter J. Culver, Mingguo Hong, “Coal’s decline: Driven by policy or technology? The Electricity Journal 29, no. 7 (September 2016): 50-61 (DOI: 10.1016/j.tej.2016.08.008)