Coal to gas switching or should we say displacement volumes

Coal to gas switching or should we say displacement volumes

Coal to gas switching is much talked about this year.  Many people like the switching word;  but there is a dynamic that is occurring and also the term switching in the power industry,  typically refers to units who have dual fuel.   The better word is probably displacement – semantics.

There is two parts to the coal to gas displacement – structural and economic.   The structural part is quite easy to discuss.   The US market typically has required 50%+ of its generation from coal.   Assuming no decline in load growth if coal units retire other units would need to fill in that void of generation.  This part is the structural part of the displacement.   As many have shown there are significant EPA rules which lead to the retirement of coal units.   Now with the addition of the economic competition to coal from low gas price that may exacerbate the volume of retirements.   Obviously the selection of which coal unit retirement will likely be based on how much that coal unit is used and how economically competitive it is.   Those units who still run significantly will either already have the necessary control equipment to meet the EPA rules or it will likely be economically to install those controls.   Therefore for a proxy one could look at the coal generation by plant from last year and stack up the capacity and generation.  Also if one is savvy, one can also get a proxy cost of generation from each plant.

Now that you have generation stacked with capacity and cost you can do a calculation to calculate the approximate amount of gas generation if X capacity of coal was going to retire.  I would not use a Combine Cycle heat rate (7) since some of that generation may be actually at peak times since some of the older coal plants are likely running at those time.   In this example I used an 8 heat rate.   Summing the data to produce 20GW of capacity retirements, produces 1.3 bcf/d of additional gas demand.   Going to 40 GW of capacity retirements we are looking at 2.7 bcf/d.   All this is the structural piece.   Given the push for green energy the numbers will be lower some of the above number.   The surprising perspective for many is that the gas potential in the power sector can be as dependent on the renewable outlook as the coal outlook.

In terms of the economic portion, this is the very dynamic portion.  I have done much work in this arena and have given multiple presentations.   This is very dependent on your price outlooks for both gas and coal, particularly on sustainable basis.   In addition, time plays a crucial part in the analysis.  One has to ask displacement for this week, next month, or next year.   Each of those time periods various inputs into a dispatch model must be modified.   Also the basis of displacement is being mixed in with natural load growth which in general is being filled in by gas or renewables.   Therefore some analysis will say 10 bcf/d of switching will be seen in the next few years, but that includes a load growth which would have occurred regardless.  If you are interested in getting some ball park numbers give me a call 614-356-0484 or email me and be prepared to tell me the timeline, gas prices, and coal prices.

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David K. Bellman


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