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 [email protected] and be prepared to tell me the timeline, gas prices, and coal prices.
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To be right now and be praised or to be right in the long run and be hated
I did want to write about the energy space since there is much to discuss, but this issue has been nagging me. Recently I came across an article on Zerohedge on a presentation focused on the “Deficits don’t matter”. Then I keep on recalling Henry Blodgets article on Business Insider saying Keynes was right.
Both articles highlight my title: “To be right now and be praised or to be right in the long run and be hated.” This reminds me of the Greek tale of Cassandra. I think most will likely go with the first. There is no doubt a stimulus now will always feel better now. Deficits don’t matter can be rephrased – “If you can live on credit why not?” I don’t think the deficit hawks would say the economy would blow up in the next few years if we did significant monetary printing now. The next few years will no doubt feel and be better with the printing press on. It’s a question of the extent and when and who should pay the bill. I can agree with Paul Krugman that an avoidance of a depression may be worthy of printing in order to have a slower economy later. However, I am agreeing as a selfish individual. Clearly the statement is concluding – there is growth to be taken from the future to get by now. By following this recipe does the culprit of the wasteful spending ever get taught a lesson or are we creating another moral hazard. Poor capital allocation is okay because it will be supported by more spending and will be supported by future potential growth.
Time for an analogy: Since your child will be a doctor in the future, one can just rack up loans and live the good life because in the future your child will help you with your loans. At some level the child does owe some of it to you, but you are clearly requiring him/her to live less of lifestyle as they could have. Is this the path we are on?
So I throw caution to those praising our stimulus promoters and marching the victory parade. The victory parade can be made for a few, but it won’t likely be a parade 20 years from now. Optimistically, I believe the future generation will and can carry the weight, I just hope we don’t pile it on too high to the point Atlas will shrug.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias right is what we offer to our clients. Please consider and contact All Energy Consulting for your consulting needs.
Your Energy Consultant,
614-356-0484
Being Green is Hard
Once again I sit in the airport writing this blog. Your energy analyst has been very busy – which is a good thing. As I noted in my previous blog, I have been doing the twitter thing. The people I have chosen to follow are not just the people that believe what I believe in. One person I follow, David Roberts, is from the Grist. The Grist is an interesting publication focused on the environment. They claim not to be too much of a tree-hugger. Mr. Roberts is clearly a self-professed liberal – I deduce this from the continuous negative connotations for the GOP, along with little to none negativity with the democrats. Once again I don’t mind at all to view and read his point of views. Clearly he is right on many of the issues that he points out with regards to the GOP.
One of his latest blog he asked the twitter world whether he should buy a Prius V or VW TDI. I really didn’t think he meant to ask me, but I do follow him. Therefore I suggested to him he should probably think about buying a used car or better yet drive his existing car to death. This is largely due to the fact that most of a car CO2 emission is from the manufacturing and marketing of the vehicle versus the actual fuel consumption for the life of the vehicle. Those who feel they are being green by buying a new ultra-efficient vehicle, while they have a mechanically functioning vehicle, have not seriously examined the complete picture. I even note an article from the Guardian who also supports that claim.
I have yet received a reply for my kindness of taking the time and answering his request from his twitter follower. However, I write this only to point out the reality that it really is hard to be green. Being green takes sacrifice in your lifestyle, which many do not want to do.
We positively and evocatively challenge the current thinking involving any aspect of energy use. We look for projects that offer meaningful, transformative, with impactful outcome to the marketplace or society.
Independent analysis and opinions without a bias right is what we offer to our clients. Please consider and contact All Energy Consulting for your consulting needs.
Your Energy Consultant,
