Yahoo Finance Inside the Triumph of Natural Gas over Coal in 2016
The Present Revolution in US Electricity Generation: Key Trends
Natural gas versus coal
According to the EIA (US Energy Information Administration), natural gas is expected to surpass coal generation on an annual basis in the US in 2016. Last year, in April 2015, power generation from natural gas exceeded coal on a monthly basis. Then, for the rest of 2015, generation from both coal and natural gas were nearly identical, with each accounting for ~33% of total generation.
What led the switch?
Traditionally, power generators use coal (KOL) as their primary energy source, due to coal’s high capacity factor. The primary driver behind the switch from coal to natural gas was the lower cost of the latter, which made generation economically attractive for power companies.
Meanwhile, the large supply that resulted from the shale or “fracking” revolution also transformed the balance between coal and gas generation. Notably, coal’s market share is directly proportional to natural gas prices.
Regulations play secondary role
The EIA thinks environmental regulations are also responsible for the declining share of coal. Not only natural gas but also the increasing invasion of renewables (PBW) has resulted in a decline in power generation from coal, however.
With more stern environmental regulations and prolonged lower natural gas prices, coal’s share is likely to decline further. In the EIA’s Short-Term Energy Outlook, it forecasts that natural gas will provide 33% of generation in 2016 and that coal’s share will fall to 32%. Meanwhile, the expected share of nonhydro-renewables increases to 8% in 2016, with hydropower’s share at 6%.
Duke Energy (DUK) and Southern Company (SO) also increased the proportion of natural gas in their fuel mix last year by lowering coal’s share. NextEra Energy (NEE) is the biggest utility (XLU), with nearly 50% its generation coming from natural gas (UNG).
Now let’s take a look at regions.
Browse this series on Market Realist:
