Coal took something of a beating from natural gas in the power generation arena this year, but coal’s displacement by gas wasn’t strictly due to exceptionally low gas prices, according to analysts at Barclays Capital. Coal producers can curse cheap gas if they want, but other factors were at play, too.

Reduced demand for power from industrial consumers, which was driven by the economic recession, had a greater effect on coal-fired plants than on their gas-fired cousins, the analysts wrote. This is because industrial power demand, which tends to be steady around the clock, is served primarily by baseload coal plants, while gas-fired plants meet peaking demand. So a reduction in power demand from industrials across the United States impacted coal plants more than gas plants.

The pullback in industrial power demand changed the load shape. Coal plants cannot ramp down at night the way that gas-fired plants can. So generators relied more heavily on gas plants to follow demand that was off more sharply at night.

Gas-fired units also ran more often to balance the intermittency of wind power. “Older coal units do not offer the same fast-ramping capability, forcing the use of gas-fired plants, even if the operating cost of gas is more than coal,” the analysts noted. “Wind capacity is growing, suggesting this factor will remain and even expand.”

Gas didn’t beat coal everywhere, the Barclays team noted in its note Tuesday. “As cheap as gas prices were at times in 2009, they were not low enough to displace coal in ERCOT [Electric Reliability Council of Texas] or the West,” the analysts wrote. “Powder River Basin coal and lignite remained cheaper than gas.”

Appalachian coal however, enjoyed a price run-up in 2008 on the strength of international coal demand. Term contracts signed in 2008 for 2009 reflected some of this strength, the analysts noted.

“Taken together, these factors tell us that the displacement of coal was regional and not entirely price-related,” the analysts wrote. In eastern regions gas simply stole market share from gas, they noted. “…[I]n the West, Midwest and Texas gas and coal output fell as lower loads pressured output from both fuels lower. That is, gas did not meaningfully displace coal in these regions.

“The coal displacement by gas story is prominent in just three power regions — the Southeast, the East South Central region and the PJM power market area (Middle Atlantic), where coal output was down but gas demand was up.”

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