By - Jim Vess

Nuclear and coal-fired power plant closures offer an expanded market for natural gas

Energize Weekly, May 2, 2018

A string of announced closings for nuclear and coal-fired power plants is part of a trend that is offering a big market for natural gas, according to an analysis by energy consultant BTU Analytics.

In March, FirstEnergy announced that it would close three nuclear power plants in Ohio and Pennsylvania, with about 4,000 megawatts (MW) of generation, citing “market challenges.” Utilities are also planning to take at least 11.4 gigawatts (GW) of coal-fired capacity offline this year—the most since 11.7 GW were retired in 2015.

“With more coal retirements expected in 2018, is the FirstEnergy news a harbinger of a continued long slow decline of nuke and coal power generation?” Andrew Bradford, the CEO of BTU Analytics, an energy market consultant, asked

Bradford offers a scenario where coal and nuclear generation are cut in half, and the generation needs are split between natural gas and renewable energy sources.

“Coal and nuke plants face a mean combination of price competition from shale gas and renewables compounded by unfavorable political and consumer sentiment in some markets due to environmental concerns,” Bradford said. “Should these trends continue, this hypothetical scenario may track towards a future reality.” 

Total coal generation is equal to 23.1 billion cubic feet per day (Bcf/d) of gas demand and total nuclear generation the equivalent of 15.4 Bcf/d demand, according to BTU calculations.

The Midwest and Appalachia represent the largest markets for coal and nuclear generation. In PJM, the wholesale market that serves mid-Atlantic and Midwestern states, on April 23 midday, nuclear supplied 35 percent of the load and coal 24 percent.

“While coal generation in these two markets has seen declines since 2011 thanks to proximity to low-cost Marcellus natural gas, nuclear generation has remained relatively flat,” Bradford said.

If all the coal and nuclear generation in the Midwest and Appalachia is converted to gas, it represents the equivalent of more than 16 Bcf/d of potential demand. 

“We cannot assume natural gas captures all generation declines, so in this case, we used a 50/50 split. This is a back-of-the-envelope estimate driven by impressive cost and output gains by wind and solar recently and an assumption those gains carry into the future,” Bradford said.

The scenario of cutting coal and nuclear generation in half could represent an incremental 9.6 Bcf/d of demand growth for the gas market by 2030, according to Bradford. That is the same size as the current build out of the six U.S. liquefied natural gas (LNG) terminals in the U.S that are operating, under construction or permitted.

The federal Energy Information Agency (EIA) said that natural gas-fired generation is already the primary electricity source in the U.S., accounting for 32 percent of the nation’s electricity in 2017. The EIA projects that natural gas will grow to 34 percent by 2019.

Natural gas generation has, however, begun to encounter some pushback. In January, the California Public Utilities Commission ruled that the state’s largest utility, Pacific Gas & Electric, replace three existing gas plants with energy storage or clean energy resources. 

Arizona regulators placed a nine-month moratorium on any new gas plants larger than 150 megawatts. Instead of relying on gas, commissioners will now consider resource plans where clean energy accounts for a large percentage of generation.

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