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Electricity from natural gas surpasses coal for first time in U.S., but just for one month

Posted August 3, 2015

In April, traditionally the month when total electricity demand is lowest, U.S. generation of electricity fueled by natural gas exceeded coal-fired generation for the first time since the start of EIA’s monthly generation data in 1973. However, EIA’s latest Electric Power Monthly shows that coal’s generation share once again exceeded that of natural gas during May. Total generation from coal and natural gas in May increased 14% from its April level, with increased coal generation accounting for 65% of the combined increase.

Image credit: U.S. Energy Information Administration

Image credit: U.S. Energy Information Administration

Total generation from coal- and natural gas-fired generators is seasonal: higher during summer and winter months when electricity demand is highest, and lower in the spring and fall when electricity demand is lower. Many units take advantage of these months of low demand to schedule maintenance. As demand increases towards its summer peak level, the utilization rates for both coal- and natural gas-fired units tend to rise.

In April 2012, the last time monthly natural gas generation came close to surpassing coal-fired generation, spot prices for natural gas were near $2 per million Btu ($/MMBtu) on a monthly average, before returning to about $3.50/MMBtu in the last months of 2012. Low natural gas prices make gas-fired generation economically attractive during periods of low demand when operators in many parts of the country have more flexibility to choose between coal- and natural gas-fired units based on their dispatch cost.

On an annual average basis, coal has lost generation share to natural gas and, to a lesser extent, renewables. The current downward trend in coal-fired generation began in 2007, when increased U.S. production of natural gas (particularly from shale) led to a sustained downward shift in natural gas spot prices and increased generation from natural gas-fired generators.

Image credit: U.S. Energy Information Administration

Image credit: U.S. Energy Information Administration

Monthly coal-fired generation is expected to continue exceeding natural gas-fired generation for the remainder of 2015, as natural gas prices slowly rise from their April average price of $2.61/MMBtu to about $3.30/MMBtu by December. EIA’s July Short-Term Energy Outlook forecasts the gap between coal and natural gas to continue diminishing: coal’s annual share of U.S. generation is expected to average 36% in 2015, down from 39% in 2014, while the average fuel share of natural gas in 2015 is expected to be 31%, up from 27% last year. The actual levels of generation from each fuel will depend on the prices of each fuel and overall levels of electricity demand. Because natural gas is also used to heat homes and businesses, spot natural gas prices tend to fluctuate more than spot coal prices, especially as weather and electricity demand levels differ from expectations.

In the longer term, coal-fired generation could decline in part because of environmental regulations such as the U.S. Environmental Protection Agency’s (EPA) implementation of Mercury and Air Toxics Standard (MATS), which has resulted in coal plant retirements. MATS currently remains in effect, but is under evaluation in the D.C. Circuit Court of Appeals following a June 29 decision by the U.S. Supreme Court. EPA’s proposed Clean Power Plan (CPP), which included an implementation schedule starting in 2020, could result in an even more significant decrease in coal-fired generation. Changes in either the provisions or the implementation timeline of EPA’s final CPP rule could change impacts from those estimated in EIA’s recent analysis.

Source: EIA

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