By - Jim Vess

As natural gas prices rise, coal-fired electricity generation takes the lead

Energize Weekly, July 26, 2017

After natural gas-fired generation slipped ahead of coal as the main source for U.S. electricity for the first time in 2016, rising natural gas prices are giving coal new life this year, according to the federal Energy Information Administration (EIA).

In 2016, natural gas supplied about 34 percent of total U.S. electricity generation, while coal, long the main generating fuel source, fell to 30 percent. It was a first for natural gas since 1949 when data collection started. The growth in natural gas generation was spurred by low gas prices, which averaged $2.88 per million British thermal units (BTUs) delivered to generators in 2016.

Generation, however, is always fuel price sensitive and subject to fuel switching. Since last year, natural gas prices have risen 24 percent to $3.58 per million BTUs in the first half of 2017.

The EIA forecasts that the share of total U.S. generation fueled by natural gas during the first half of this year averaged 29 percent, about 5 percent less than the same period last year. Coal’s share of generation rose from 28 percent in the first half of 2016 to 30 percent in the first half of 2017.

A sharp increase in conventional hydroelectric generation, particularly in the western states, has also contributed to natural gas’ reduced share of generation. The share of total generation in the West supplied from hydropower averaged 32 percent the first half of 2017, compared with 27 percent during the first half of last year.

For the second half of 2017, EIA projects a less pronounced change in generation shares. Natural gas is expected to fuel 33 percent of total U.S. generation in the second half of 2017, just 1 percent less than it did in the first half of 2016, once again making it the primary fuel—but just barely. The natural gas price, delivered to electric generators, is expected to average $3.60 per million BTUs between July and December 2017, up 46 cents from the same period in 2016.

Coal’s share of generation in the second half of 2017 will be relatively unchanged from the second half of last year at 32 percent.

EIA said it expects natural gas and coal to fuel about the same amount of generation in 2018, with each providing slightly more than 31 percent of total U.S. generation. Renewable energy sources other than hydropower are forecast to supply almost 10 percent of U.S. generation in 2018, up from slightly more than 8 percent in 2016.

Annual retail sales of electricity to the residential sector in 2017 will be 2.3 percent lower than sales in 2016 as a result of lower electricity consumption in the first and third quarters, according to EIA projections. 

The EIA is expecting electricity demand to be down in 2017 compared with 2016 as forecasts for milder summer temperatures will reduce electricity consumption by 5 percent this summer.

The agency forecasts average residential electricity sales between June and August to range from about 2,000 kilowatt-hours (kWh) per customer in the Pacific census division to about 4,400 kWh per customer in the West South Central division.

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