In rise of natural gas, existing NGCC fleet plays starring role
To understand how natural gas has surged so quickly to the top of the US-power generation rankings, look no further than the rising capacity factors of natural gas combined-cycle plants.
Capacity factors, which measure actual generation as a percentage of nameplate capacity, averaged 56.3% at NGCC plants in the first 11 months of 2015, up from 48-49% in the corresponding period the previous two years. At coal-fired plants, the average capacity factor slid to 55.77% in January-November 2015 from 61.4% the previous year, the US Energy Information Administration’s data showed.
Lower natural gas prices in 2015 made natural gas-fired generation more competitive, helping it to overtake coal as the number one source of electricity in April and every month from July to November, the most recent month for which data was available when this article was published. But prices only tell half of the story.
Efficiency, measured by heat rate, also goes a long way to explaining the rise of natural gas. Newer NGCC plants typically require about 7,000 British thermal units of fuel to generate one kilowatt hour of electricity; this translates to 49% conversion efficiency, as one kWh has a heat content of 3,412 Btu. Coal plants in the United States have an average heat rate of about 10,000 Btu/kWh, for about 34% efficiency.
“If natural gas is $5 per million Btu (MMBtu) and coal is $3/MMBtu, then the electricity from the gas would cost 3.5 cents/kWh and the coal would cost 3 cents/kWh. However, if the price of the gas went down to $4/MMBtu, then the gas generation would be 2.8 cents/kWh”, Christopher Namovicz, EIA head of renewable-energy analysis, told FC Gas Intelligence.
“Since the generation from gas would then be cheaper than generation from coal, grid operators would run the gas plant more and the coal plant less,” he added.
Spot prices for natural gas at the benchmark Henry Hub averaged $2.62/MMBtu in 2015, the lowest since 1999. The average price hit a 17-year low of $1.93/MMBtu in December 2015, meaning gas generation would have cost 1.35 cents/kWH from a typical NGCC plant. The EIA is forecasting an average benchmark price of $2.65/MMBtu in 2016 and $3.22/MMBtu in 2017 on the back of consumption growth from the industrial sector.
The US Clean Power Plan (CPP) requires an increase in the capacity factor of existing NGCC plants to 75% by the year 2030. Higher prices will see a pullback in consumption by 0.3% in 2016 and a further 1.4% in 2017, the EIA estimates. But with natural gas production forecast to increase from 75.5 billion cubic feet per day in 2015 to 98 bcf/day by 2040, consumption will rise in the long term.
Bridging the gap
Natural gas has dominated new generation since 1990, with NGCC alone accounting for 49% of new installed capacity, other natural gas plants accounting for 25%, and coal for just 6%, with renewables filling in most of the gap, according to the EIA. About 20% of the existing US coal fleet, translating to roughly 60 GW worth of coal-fired capacity, is slated for retirement in the next few years, according to consultancy RBN Energy. NGCC could replace around half of that capacity, with about 32 GW of power generation being planned at an approximately $32 billion investment, according to Namovicz.
Combined-cycle plants have traditionally had lower capacity factors for several reasons, GE has noted. These include: cost or availability of the fuel in some competitive markets; excess capacity due to weak electricity demand; prioritization of regulated power resources, at expense of independent providers who mainly use combined-cycle generation; and infrastructure problems (some regions have not been fully integrated into the pipeline network; natural gas is usually piped into a plant, rather than stored).
A 2012 Massachusetts Institute of Technology study explained the lower natural-gas capacity factors of the time as being at least partially due to the overbuilding of NGCC units in the mid-1990s and their subsequent use in load-following or peaking services.
NGCC units “can start much faster than conventional plants… [while] supporting intermediate load or peak load needs,” Dr. Bonnie Marini, director of product-line marketing at Siemens, commented to FC Gas Intelligence. “They can ramp up and down fast…which enables the plant to maintain low emissions while load following, enabling support of varying renewable generation.”
The combination of high energy-conversion rates and low prices have changed the balance between natural gas and coal, he noted: “Low gas prices have resulted in gas-fired facilities being able to be more competitive on grids with coal facilities, enabling higher dispatch for the gas-fired plants.”
If the current trend continues, the CPP target for NGCC capacity factors will likely be reached with several years to spare.
By Ivan Lerner