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EIA Expects Natural Gas-Fired Power Generation to Near Record Highs This Summer

The Energy Information Administration (EIA) expects natural gas-fired electricity generation to near record highs this summer as prices remain low and outcompete other resources such as coal, which is again forecast to play a lesser role in the nation's power stack from June through August.

EIA said in a note Wednesday that gas-fired power plants are expected to supply 37% of U.S. electricity generation this summer, near the record-high in summer 2016. Meanwhile, coal-fired power supply is forecast to drop slightly to 30%, “continuing a multi-year trend of lower coal-fired electricity generation,” EIA said, drawing on data released on Tuesday in its Short-Term Energy Outlook.

From 2015-2017, EIA said, the cost of natural gas delivered to electric generators averaged $3.16/MMBtu, well below the $7.69/MMBtu average between 2006 and 2008. EIA forecasts the delivered cost of natural gas will also average $3.16/MMBtu this summer, 2% lower than the average cost last summer. The cost of coal delivered to electric generators is forecast to rise slightly this summer.

The forecast comes as the Trump administration is considering using its authority under two federal laws to compel the nation's grid operators to purchase electricity or power generation capacity from faltering coal and nuclear plants at the expense of other resources, including natural gas.

Merchant generators have faced stiff competition in the open market, but it has intensified with an increasingly diversified resource mix. In recent years, renewable sources have become more competitive and an abundance of low-cost natural gas has caused electricity prices to plummet, undermining coal and nuclear plants in the process and raising concerns over the reliance of the nation's grid as more baseload power goes offline.

“The continued low cost of natural gas, along with the recent additions of natural gas-fired capacity and retirements of coal power plants, drive EIA’s expectation that natural gas will contribute a growing share of electricity generation this summer, while coal’s share will fall,” author Tyler Hodge wrote in the note.

According to EIA’s Preliminary Monthly Electric Generator Inventory, power plants added 5.4 GW of new gas-fired capacity through the first four months of this year. Another 15 GW is scheduled to come online through the end of 2018, which would be the largest increase in gas-fired capacity since 2004. The industry also added 2.6 GW of new utility-scale solar and wind capacity over the same time, with another 9.6 GW scheduled through the end of the year. More than 10 GW of coal-fired capacity was retired over the 12-month period that ended in April.

EIA expects natural gas to supply 20% of electricity in the Midwest census region for the largest bump, up from 15% last summer.

Unlike the rest of the country, however, gas-fired power in the West census region is expected to decline as renewable energy capacity increases. Almost 2 GW of utility-scale solar power came online there during the 12 months that ended in April. EIA said the share of generation in the West from renewables other than hydropower will increase to 16% this summer, up from 14% at the same time last year.

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