More generation came from natural gas in first half of 2020 versus a year ago

by Peter Maloney
APPA News
August 18, 2020

Driven by low prices, the rapid growth of natural gas as a fuel for power generation continued through the first half of the year.

Natural gas-fired generation in the lower 48 states increased nearly 55,000 gigawatt hours (GWh), or 9%, in the first half of 2020 compared with the first half of 2019, the Energy Information Administration recently reported.

The gains by natural gas came even as total electricity generation declined by 5% because of reduced business activity as a result of COVID-19 mitigation efforts.

Coal-fired generation absorbed most of the decrease in electrical load in the first half of 2020, registering a 138,000 GWh (30%) decline in output. Because of historically low natural gas prices so far in 2020, coal-fired generation this year has been uneconomical in most regions compared with natural gas-fired generation, leading to price-driven coal-to-natural gas fuel switching, EIA pointed out.

In the first half of 2020, natural gas prices at the U.S. Henry Hub benchmark reached record lows. The average monthly Henry Hub spot price in the first six months of the year was $1.81 per million British thermal units (MMBtu) compared with an average of $2.74/MMBtu in the first half of 2019. And monthly prices reached a low of $1.63/MMBtu in June, the lowest monthly inflation-adjusted price since at least 1989, EIA noted.

Coal prices, on the other hand, were relatively stable in the first half of 2020. The average delivered cost of coal was $1.91/MMBtu this year through May compared with an average delivered cost of $2.07/MMBtu at the same time last year.

Low gas prices relative to coal prices often results in fuel switching in competitive wholesale power markets where cheaper fuel often determines which power plant is dispatched.

Coal-to-natural gas switching was most prominent in the PJM Interconnection and the Midcontinent Independent System Operator (MISO), which together account for about 35% of the total electric power generation in the Lower 48 states, EIA said.

At the end of June, local spot gas prices at hubs in PJM and MISO were at $1.58/MMBtu and $1.66/MMBtu, respectively, down nearly 50¢/MMBtu each from last year, EIA said.

Gas-fired generation increased by about 17,000 GWh in PJM and by 15,000 GWh in MISO in the first half of 2020, while coal-fired generation declined about 34,000 GWh in PJM and 40,000 GWh in MISO.

The Electric Reliability Council of Texas (ERCOT) region was the exception to that trend. Coal-fired generation in ERCOT declined 8,650 GWh in the first half of 2020 compared with the first half of 2019, but gas-fired generation also declined slightly. Most of the decline in coal-fired generation in ERCOT was offset by increases in wind and solar generation, which together increased about 8,400 GWh in the first half of 2020, EIA noted.

Coal-fired generation remains reasonably competitive in ERCOT, EIA said, because power plants there have access to low-cost subbituminous coal from Wyoming’s Powder River Basin and to lignite produced at mines near several plants.

Natural gas has also become the favored fuel for new power plants. About 18,000 MW of combined-cycle natural gas turbine plants have entered service since 2018, according to the EIA’s Electric Power Monthly. During the same 30-month period – January 2018 through June 2020 – about 31,000 MW of coal-fired capacity retired along with about 2,400 MW of nuclear power capacity.

Many coal-fired plants are also being repurposed to burn other types of fuels. A total of 121 coal plants were repurposed between 2011 and 2019, most of them to burn natural gas, the EIA reported earlier this month.

The EIA also noted, however, that gas-fired generation is facing increased competition from solar and wind capacity. Since 2018, about 23,200 MW of new net solar and wind capacity has been added. Renewable energy, consisting of wind, solar, and hydroelectric generation, has increased by about 5% and has been the only other fuel source other than natural gas to grow in the first half of 2020, the EIA said.