July, 2014 – The Electric Power Research Institute (EPRI) recently released a report looking at the potential mix of electricity generation in the U.S. in 2030. They concluded that the mix was highly dependent on the future cost and availability of natural gas.
We’ve all heard about new technology in the natural gas business, such as horizontal drilling and hydraulic fracturing (fracking), that has made natural gas relatively abundant in the U.S. Regardless of how you might feel about the potential environmental effects of those techniques in N.C., their use is in full swing in places like Texas, Pennsylvania and North Dakota. The result is much lower natural gas prices, as low as $2 per mmBTU recently and currently around $4 per mmBTU due primarily to last winter’s weather.
The EPRI study looked at a wide range of natural gas prices but in this post, we will discuss only the $4 and $2 mmBTU price points over the next 15 years. This discussion does not include the effects of the recently proposed U.S. Environmental Protection Agency (EPA) regulations on carbon dioxide. We plan to talk about that issue in a future post.
At $4 per mmBTU, the electricity generation landscape in 2030 would still look familiar. Existing nuclear power plants would remain cost competitive but probably no new conventional nuclear would be built. Existing coal plants built recently or already retrofitted with “traditional” pollution control equipment might remain in service. Older, less efficient, coal plants would be retired and no new coal would be built. New wind and solar generation would remain non-competitive with natural gas and would be built primarily for state and federal tax credits or renewable requirements. Natural gas generation could represent about 40 percent of the electricity energy mix in 2030, up from 20 percent currently.
At $2 per mmBTU, natural gas generation starts crowding everything else out. Most existing nuclear plants would not be cost competitive to operate and would start to be retired. Almost all coal plants would be retired. Even with state and federal tax credits, wind and solar would be expensive compared to natural gas, putting more pressure on incentives and state renewable requirements. At the $2 per mmBTU price point, natural gas generation could easily represent more than 80 percent of our generation mix in 2030.
We have long been an advocate of a diverse generation portfolio that includes a mix of nuclear, coal, natural gas and renewables. That mix has served us well in the past in terms of reliability and avoiding fuel price volatility. However, if natural gas continues to be abundant and relatively inexpensive, a diversified generation portfolio may not be the lowest cost option in the future.
Of course, we’ve heard these stories before. Back in 1980, it seemed likely that nuclear power would crowd out all the other sources of generating electricity. There was even discussion that nuclear power would eventually be “too cheap to meter”. We all know how that turned out.
Do you have a question or comment about the new EPRI study? Suggestions for future topics? Please submit them to MAC@wemc.com.