As natural gas prices come more in-line with coal, generators make the switch

Natural gas, coal

Source: EnerCom Analytics

This chart, provided by EnerCom Analytics, shows the increasing use of natural gas as opposed to coal for electrical generation. April 2015, marked the first time ever that natural gas was responsible for more electrical power generation than coal.

The grey and red bars show the percentage of power generation coal and natural gas are responsible for, with 100% representing the total power generation from just those two power sources. The green and black lines show the price of both commodities, with coal adjusted to $ per Mcfe to ensure that the price comparison is on an energy equivalent basis.

As the cost of natural gas continues to decline, there is a substitution effect of swapping coal use for the less greenhouse-gas (GHG) intense natural gas by companies generating electrical power. There has been an increasing push from the electrical power generation sector to move towards lower-emission fuel sources, with the industry producing the lowest level of emissions in 27 years in April.

With the EPA’s final Clean Power Plan setting emission-reduction targets 32% below levels in 2005, coal will likely become increasingly unattractive due to policy. As the political costs of using coal increase, and the price of natural gas continues to decline, natural gas will likely continue to power an increasing number of electrical generators.

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