Coal to gas switching is much talked about this year.\u00a0 Many people like the switching word; \u00a0but there is a dynamic that is occurring and also the term switching in the power industry, \u00a0typically refers to units who have dual fuel.\u00a0\u00a0 The better word is probably displacement \u2013 semantics.<\/p>\n
There is two parts to the coal to gas displacement\u00a0\u2013 structural and economic.\u00a0\u00a0 The structural part is quite easy to discuss.\u00a0\u00a0 The US market typically has required 50%+ of its generation from coal.\u00a0\u00a0 Assuming no decline in load growth if coal units retire other units would need to fill in that void of generation.\u00a0 This part is the structural part of the displacement.\u00a0\u00a0 As many have shown there are significant EPA rules which lead to the retirement of coal units.\u00a0\u00a0 Now with the addition of the economic competition to coal from low gas price that may exacerbate the volume of retirements.\u00a0\u00a0 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.\u00a0\u00a0 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.\u00a0\u00a0 Therefore for a proxy one could look at the coal generation by plant from last year and stack up the capacity and generation.\u00a0 Also if one is savvy, one can also get a proxy cost of generation from each plant.<\/p>\n
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.\u00a0 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.\u00a0\u00a0 In this example I used an 8 heat rate.\u00a0\u00a0 Summing the data\u00a0to produce\u00a020GW of capacity retirements, produces 1.3 bcf\/d of additional gas demand.\u00a0\u00a0 Going to 40 GW of capacity retirements we are looking at 2.7 bcf\/d.\u00a0\u00a0 All this is the structural piece.\u00a0\u00a0 Given the push for green energy the numbers\u00a0will be lower some of the above number.\u00a0\u00a0 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.<\/p>\n
In terms of the economic portion, this is the very dynamic portion.\u00a0 I have done much work in this arena and have given multiple presentations.\u00a0\u00a0 This is very dependent on your price outlooks for both gas and coal, particularly on sustainable basis.\u00a0\u00a0 In addition, time plays a crucial part in the analysis.\u00a0 One has to ask displacement for this week, next month, or next year.\u00a0\u00a0 Each of those time periods various inputs into a dispatch model must be modified.\u00a0\u00a0 Also the basis of displacement is being mixed in with natural load growth which in general is being filled in by gas or renewables.\u00a0\u00a0 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.\u00a0 If you are interested in getting some ball park numbers give me a call 614-356-0484 or email me dkb@allenergyconsulting.com and be prepared to tell me the timeline, gas prices, and coal prices.<\/p>\n
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