Cheap Natural Gas Leads to Falling Consumer Electricity Rates
Plunging oil prices may have hit some energy companies hard and have some oil-producing nations worried about their budget deficits, but it has been a boon to the average American consumer as electricity rates have dropped 1% nationwide to an average of 12.4 cents per kilowatt hour, the first nationwide decline in energy prices in decades.
As developed nations move away from burning dirty coal for energy as a result of the efforts to meet international greenhouse emission caps, cleaner burning natural gas plants and alternative energy sources (wind, sun, geothermal, etc) are filling in the gaps. Natural gas is now the major source of fuel for energy producing plants, and a 28% drop in the price of natural gas for energy producers over the first half of the year has translated into big gains for consumers nationwide.
However, the replacement of coal burning plants with plants that use natural gas and a plunging price in hydrocarbons is not the entire story. Solar and wind energy in particular continue to become more efficient with advancing technologies, and are taking an increasing share of national, and international, energy production. This year the United Kingdom produced more energy from solar panels than from burning coal, and marked the first day since 1882 that no energy was produced from the burning of coal across the entire nation.
The state of Texas has enjoyed an even greater drop in consumer electricity prices, down 6% to 11 cents per kilowatt hour, thanks to easy access to plentiful supplies of cheap natural gas and a deregulated market. The deregulated market has allowed producers to adjust their prices sooner to reflect the lower cost of natural gas, and then pass these savings on to the consumer.
New England, which has a similar share to Texas of energy produced by natural gas, saw a similar decline in electricity rates over the year. However, the biggest decline of 12% was observed in the state of Hawaii, which uses oil for the vast majority of its energy production. The steep decline in the price of oil helped to bring electricity rates down substantially, albeit from a position that was far above the national average as a result of the state’s remote location and the difficulties that its geography causes for the installation of energy infrastructure.
Natural Gas To Surpass Coal As Source Of CO2
Natural gas is expected to soon surpass coal as a source of CO2. As natural gas continues to replace coal as a fuel for the production of electricity for the nation’s electric grids, the total amount of emissions coming from natural gas activity will pass that of coal in 2016.
Energy related CO2 emissions from natural gas are expected to exceed that of coal by 10% in 2016. The total amount of electricity generated by natural gas reached record highs in the U.S. in July of 2016. The nearly 5,000 gigawatts per day surpassed the previous record in 2015 by around 9%. This was due partially to high temperatures as well as the continuing price advantage of natural gas over coal. For the year, electricity from natural gas is expected to account for around 34% of power output compared to 30% for coal.
As ever tightening federal mandates force coal plants to either modernize or shut down, coal based electricity output has been in a multi-year down trend in the US. This is expected to continue in the years to come. Much of this lost production has been replaced by renewable sources of power such as solar and wind. The latter is particularly the case in Texas.
This all comes on top of another trend that has seen overall electricity sales declining thanks in part to greater energy efficiency in residential construction as well as federal energy efficiency mandates. Lower peaks in electricity demand tend to favor cleaner sources of power. Coal and natural gas are considered more responsive sources of power generation and more likely to be ramped up in times of greater peak demand.
The gradual shift of electricity production away from coal and toward natural gas and renewable sources of power has not put upward pressure on electricity rates. The national average for electricity for July 2016 was 13.0 cents per kwh. By comparison, a 12 month electricity plan can be found for 6.3 cents per kwh in the Dallas, Texas area as of the time of this writing.
Solar In, Coal Out, In Texas Electricity Grid
Going forward almost all new electricity in Texas will come from renewable energy sources – primarily solar energy. This is according to a report released by the agency responsible for maintaining the Texas electricity grid. Once the dominate sources of electricity in Texas, coal has been on its way out for a number of years. Due to a combination of market forces and federal regulations, coal can no longer compete with other sources or power.
The report looks at a number of possible scenarios to project the makeup of the Texas electricity market over the next 15 years. The scenarios include High Economic Growth, Recession, and Extended Extreme Weather.
Under every scenario solar energy is the predominate theme. It seems that solar energy is finally having its moment in the Texas sun. Today the state gets a tiny percentage of its energy from solar power. According to the latest projections, this amount will soar to around 17% in the next 15 years. Practically all of the gains in solar will come at the expense of coal.
The Texas deregulated electricity market is designed to allow competition to keep electricity rates low. The largest component of electricity rates is the wholesale price of electricity paid to the producers from retail electricity providers. The fact is, electricity generated by solar power is now cheap and getting cheaper.
This is not just a Texas phenomenon. Worldwide, solar energy is expected to be the cheapest source of new energy over the next 15 years. Between now and 2040, 43% of new capacity worldwide is expected to come in the form of solar.
Pressure on coal is not coming just from competition from clean energy sources. Tough federal regulations will continue to have their intended effect over the coming years. Over the next 5 years alone, 5 gigawatts of coal power will be leaving the Texas electricity grid because of the EPA’s “regional haze rule”. Against this, 14 to 28 gigawatts of solar power are expected to come on line in Texas over the next 15 years.
Coal’s Importance To Texas Electricity Continues To Decline
The use of coal to generate electricity in Texas continues to slide. Just ten years ago, half of the electricity in Texas came from the burning of coal. Today, coal only contributes 20%.
Why the huge drop off? The two main factors are natural gas and wind energy, with solar and hydro also playing a part.
Texas is by far the largest producer of natural gas in the U.S., more than doubling the production of the #2 state, Pennsylvania. Texas is now producing so much natural gas, that a pipeline is being built that will send a significant amount of natural gas to Mexico to be used by their electricity generators.
Texas also produces more electricity via wind energy than any other state. There have already been days when the state saw more electricity produced from wind than from coal.
It is expected that by 2020, more than half of all coal-burning power plants in Texas will be shuttered.
ERCOT Releases The 2014 Breakdown Of Electricity Generation In Texas
Just 10 years ago, the majority of electricity generated in Texas was derived from the burning of coal. Since then, the state has taken great strides to diversify away from the high carbon-emitting energy source.
The electricity production numbers are now available for 2014. Last year Texas generated 36% of its electricity from coal, 41% from natural gas, 12% from nuclear plants and 11% from wind.
Texas is the largest producer of wind energy in the U.S., accounting for 20% of all wind energy produced in the nation. As additional transmission lines get more of West Texas and the Panhandle connected to the ERCOT grid, that number should continue to grow.
World’s Largest Carbon Capture Facility To Be Built Near Houston
The world’s largest carbon capture facility is coming to Texas. The US Department of Energy has announced that work will soon begin a project to capture up to 90% of the carbon emissions from the W.A, Parish Generating Station; a coal-fired power plant southwest of Houston Texas. Once captured, the CO2 will be pumped underground at the West Ranch oil field.
Pumping the CO2 underground will serve two purposes. By injecting CO2 into pockets of hard to extract oil, the oil is liberated in a way that makes it easier to extract. The process also results in the CO2 being sequestered underground rather than being released into the atmosphere.
The CO2 will be captured by processing the power plant’s exhaust gas through a solution of amines. The amines will bind with the Co2 allowing it to be separated from the sulfates. Later the amine solution will be heated; a process which releases the CO2. The amine is recycled while the CO2 is pressurized and piped to the oil field where it will be used to help extract the hard to reach oil.
The West Ranch oil field, which has been in operation for over 75 years, has seen its production rates fall through conventional production techniques. The carbon dioxide will reduce the oil’s viscosity and force it out of tight spots where it can be more easily extracted. The oil will them be processed to remove any CO2 that has become mixed with the oil. The CO2 can then be re-injected into the ground.
The size of the project was scaled up from original plans and will now entail capturing the CO2 from 240 MW of electricity production, making it the largest such operation in the world. The DOE will be providing financial assistance for the project, whose principals include a subsidiary of NRG Energy. NRG Energy is the parent company of Reliant Energy, a Texas electricity provider.
Although coal has long been the predominate source of electricity generation in the U.S., it has seen its market share slide in recent years as the abundance of cheap natural gas has created a cheaper and cleaner alternative. In Texas, the natural gas boom has helped electricity rates fall substantially since their highs in 2008.
New York Power Plant Could Go From Coal To Natural Gas
A troubled coal burning power plant in western New York could get a new life as a natural gas burning power plant. The facility in Dunkirk should be refitted to burn natural gas according to a study commissioned by the plant’s owners, NRG.
According to NRG the conversion, which would cost about a half billion dollars would result in a 5% reduction in western New York electricity rates. Across the entire state ratepayers could see a 2% reduction in electricity costs as a result of the plant being repurposed.
According to the report, the switch would reduce the state’s dependence on higher cost electricity and eliminate the need for a proposed $2.2 billion project to import power from Quebec to New York City.
The New York power market is beginning to experience a taste of what Texas has been dealing with for a while. An oversupply of natural gas has brought about cheap electricity rates making it more difficult for energy producers to make money; especially with coal burning power plants. The power plant in Dunkirk faces shutdown in 2015 if NRG doesn’t take drastic steps such as the conversion to natural gas.
Once practically the only game in town for electricity, coal is rapidly loosing its position to natural gas. The EPA has aggressively gone after coal in recent years with new rules that have added substantially to the cost of coal energy. The combination of free market dynamics and regulatory overhead for coal has shifted the economic equation in favor of natural gas.
The study suggests that New York rate payer will save an estimated $142 million per year as a result of the lower wholesale electricity prices. If the decision is made to pursue the conversation, it could also mean a jobs boost to the region. According to the company, such a project would result in about 1,200 new jobs.