Before the shale revolution, Pennsylvania accounted for less than 1% of the national production of natural gas. It was also a net importer, consuming four times the amount of natural gas that it produced. All around the state, in places like Allentown energy prices were among the highest in the country.
By 2016, the state’s natural gas output had risen by 2,800% and accounted for 16% of national production. In August, 2017,the Marcellus shale produced an average over 201 million cubic feet/day. According to Christina Simeone, director of policy and external affairs for the University of Pennsylvania’s Kleinman Center for Energy Policy and author of Pennsylvania’s Gas Decade Pennsylvania produced 5,264 billion cubic feet (Bcf) of natural gas in 2016 with a cumulative pipeline outflow of 6 Bcf/day. Because there’s not enough pipelines, there’s an over supply of natural gas in Pennsylvania. According to Simone, if all 59 FERC-approved pipeline projects were put into service, outflow would jump to 20 Bcf/day.
That’s explains why the volume of Pennsylvania natural gas is able to out price old coal and nuclear plants. But how does natural gas a fuel and a technology compare to coal?
Head to Head Costs
With many Pennsylvania coal fired plants aged more than 30 years, the costs for keeping old coal plant in service are getting too high. One of the major selling points of natural gas generation is that the combined-cycle technology is more efficient than the old coal-fired steam generators.
Recently, the EIA published data of how well coal and natural gas power plants profited in 2016 in the PJM region. Referring to the “dark and spark spreads”, the EIA compared the cost of fuel and the price of electricity from both coal fired and natural gas fired power plants to determine their profitability.
Making straight comparisons between any power plant is somewhat perilous. Each power plant has its own unique circumstances for costs, coal-types, heat factors, efficiency, and wholesale power prices. However, the EIA study found that coal plants commonly suffered more losses in 2016 compared to natural gas plants as a result of high heat requirements (BTU), poorer plant performance (straight steam vs combined cycle), and fuel costs.
Natural gas combined-cycle plants used 7,300 Btu of natural gas to produce one kWh of electricity. The cost was an average of $2.54/million Btu delivered.
Coal-fired steam plants used 10,500 Btu of coal for one kWh of electricity (about 30% Btus more). Coal costs $55/short ton but rail transportation added another $17/short ton or $72/short ton. With coal in the PJM region having an estimated heat content of 22.5 million Btu/short ton, the final cost for coal worked out to about $3.20/million Btu. That’s roughly 34% more than the price of natural gas in 2016.
Pennsylvania has huge gas reserves and though a few new pipeline projects began moving gas out of the state in 2016, EIA forecasts that production will increase in 2018. In all likelihood, there’s little wonder that natural gas prices for generators in the state will continue to get their supply at a discounted price. That low price, meanwhile, has incentivized the construction of 1,685 MW of capacity from high efficiency combined cycle natural gas plants and is creating approximately 4,750 jobs.
Owing mainly to grid modernization projects, Pennsylvania’s electricity delivery and distribution rates will likely not change monthly bills very much in the immediate future. But as more efficient and low cost sources of generation develop in the state, keep an eye out for falling electricity prices and increased competition among electric providers.