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April price trends favor gas burn in coal-heavy markets

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Essential Energy Insights - September 17, 2020

Essential Energy Insights September 2020

Rate case activity slips, COVID-19 proceedings remain at the forefront in August


April price trends favor gas burn in coal-heavy markets

April2015 marked the first timenatural gas-fired generation surpassed coal to supply the bulk of the nation'selectricity. A year later, market trends still favor natural gas.

According to the latest data from the U.S. EnergyInformation Administration, natural gas has narrowly edged out coal to providethe lion's share of the nation's 667.2 million MWh of utility-scale generationon a year-to-date basis through February. According to the government agency,natural gas accounted for 31.2% of utility-scale generation to coal's 31% asutility-scale generation fell 4.3% year over year. Gas-fired generation climbed7.9% to 208.3 million MWh while coal-fired generation declined by just overone-fifth to 206.7 million MWh over the same period.

Coal narrowly toppednatural gas in 2015 generation market share in part by building an early leadas natural gas-fired generation went on to surpass that of coal during sevenmonths of the year. The EIA predicted in March that gas-fired generation willtop coal for the firsttime annually in 2016, and a sample of pipeline data supports the governmentagency's assertion. In April, the government agency called power-sector coalconsumption to dive below700 million tons in 2016.

While generation figures through February point to a sharpdecline in electricity consumption year over year, data from wholesale powermarkets show April energy consumption roughly in line with year-ago levels, butstill at a deficit on a year-to-date basis through the end of April.

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Day-ahead market, or DAM, on-peak power prices were down anaverage of 14.3% versus the prior year across the U.S., with markets located inthe southern and western U.S. seeing the sharpest declines.

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Meanwhile, average spot natural gas prices fell by anaverage of 24.3% year over year to $1.975/MMBtu, with hubs serving markets inthe Northeast, Mid-Atlantic and Midwest experiencing the largest declinerelative to wholesale power prices.

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As a result, average gas-fired implied heat rates, or therate at which the market cost of power equals the cost of burning natural gasto generate power, climbed in every market but the California ISO. Regions thatrely on a substantial amount of coal-fired generation, including PJM, MISO andERCOT, saw the rate at which implied heat rates climb exceed the nationalaverage of 13.3%.

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At the same time, coal-fired implied heat rates were mixeddepending on the type of coal burned. ERCOT saw dark spreads decline across theboard, and although dark spreads climbed in PJM and MISO in some cases, therate at which margins improved for coal-fired generators did not match that ofgas-fired generators.

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Market prices and included industry data are current asof the time of publication and are subject to change. For more detailed marketdata, including power, natural gas and coal index prices, as well as forwards and futures, visit our energy commodities pages. Toview operational statistics on interstate natural gas pipelines, go to our PipelineSummary Page. To view natural gas operational flow data for receiptor delivery points, go to our OperationalCapacity by Point Page.