It’s a key expected transition in how we get our electricity — and it might be happening even faster than expected.
For the second time this year, according to the U.S. Energy Information Administration, natural gas has temporarily surpassed coal as the No. 1 source of U.S. electricity.
This happened in the month of April for the first time ever, and then also happened in July, when natural gas provided 35 percent of U.S. electricity generation and coal provided 34.9 percent, EIA says.
This certainly doesn’t mean gas will now be ahead every month going forward — natural gas prices have been quite low lately and might not stay that way — but it nevertheless does appear to be a milestone and a sign of the times.
“Is it the moment? I think there are many moments,” said Michael Liebreich, advisory board chairman and founder of Bloomberg New Energy Finance. “These are huge industries, very capital intensive, they don’t go away overnight, but it absolutely is the long-term trend.”
The change since a little over a decade ago has been gigantic. In 2003, according to a new paper by MIT’s Christopher Knittel and two colleagues published by the National Bureau of Economic Research, coal supplied 51 percent of U.S. electricity and natural gas supplied only 17 percent. But that had changed to 37 percent and 30 percent, respectively, by 2012 — and in 2015, forecasts the EIA, it will be 36 percent to 31 percent overall.
The causes are myriad, but most centrally include growing numbers of coal-plant retirements and plunging prices for natural gas, which in turn have been triggered by the unconventional gas revolution, in which a combination of fracking and horizontal drilling has unleashed dramatic new reserves of natural gas from deep shale layers.
Natural gas prices today are well under $4 per thousand cubic feet, whereas they were as high as $12.41 in 2008.
Indeed, gas prices are particularly low this year due to a supply glut that can be traced back to the “polar vortex” of early 2014, said Erica Bowman, chief economist for America’s Natural Gas Alliance, a trade group of U.S. companies.
So much gas was used to keep people warm that storage levels declined to quite low levels — and producers, accordingly, ramped up supply, driving down prices.
“It was just a massive amount of gas that came on, and I think the market realized, ‘Whoa, not only have we filled storage, but now we also have all this production, and we need to figure out a way to get through it,’ ” Bowman said. “And really, the power sector is, let’s say, your swing industry. It has the ability to ramp up gas and ramp down other fuel sources, and that’s why you’re seeing more generation in 2015 and prices lower.”
Even as gas has gained ground because of fracking technology and a current supply glut, coal has been suffering from a steady string of setbacks.
Most recently, under the newly finalized Clean Power Plan, it looks like the clear target, having much higher carbon emissions than natural gas when burned.
That’s to say nothing of other emissions, such as sulfur dioxide and mercury — compliance with mercury rules, in particular, is driving a number of coal-plant retirements this year.
For such reasons, coal has suffered from a kind of “writing on the wall” effect as climate efforts become increasingly serious, said Bloomberg New Energy Finance’s Liebreich — even as it has lost ground not only to natural gas but also to renewables, which are contributing more and more of the U.S. electricity generation mix each year.
When you look at the types of electricity generating facilities that are being built in the U.S. now, you see the same trend. In March, the Energy Information Administration projected that 91 percent of new generating capacity installed in 2015 will be in wind, natural gas and solar. By contrast, the vast majority of generating capacity expected to be retired in 2015 was in coal-fired plants.
Future trends in the electricity space might only add to the burden on coal, says BNEF’s Liebreich.
“We have storage costs going down, ease of demand management going up, electric vehicles coming into the mix — all of which threatens coal first,” he said. “Coal is definitely first in the firing line.”
