Coal- to Gas-Fired Generation Considerations: It is Not Just Fuel Economics

Implications:     As the article points out, natural gas-fired generation may be cheaper than coal-fired generation in certain parts of the nation.  The section below discusses some of the items that go into the decision to fuel switch from coal to natural gas.

Analysis:     It is not just the straight-up fuel costs of generating on coal or natural gas that are considered for fuel switching.  The following are considered when switching from coal-fired generation to natural-gas fired generation:   

    The heat rate of the available natural gas plant that would be displacing the coal plant.  It is not necessarily true that a 7,000 Btu/kWh (efficient) natural gas plant would be available to displace a coal-fired plant.  It could be a less efficient 9,000 Btu/kWh (or higher) natural gas plant, which may not be more economical to run that the coal-fired unit. 

    Take-or-pay commitments on coal and transportation may require the coal plant to buy and take delivery of the coal or find an alternative buyer to take the commitments.  This could change the economics of the decision. 

    Inventory carrying costs on the delivered coal (coal and transportation costs) from taking delivery of the coal commitments and placing in storage rather than burning add to the economic decision. 

    Stack out and reclaim costs of the coal placed in inventory rather than being directly burned in the coal plant adds to the economic decision. 

    Heat rate penalty of running a coal unit at less than full-load (power) occurs which can make the remaining power from the coal plant approximately 20% more expensive than if the plant was at full load. 

    Start-up costs on oil when the coal plant resumes operation can add costs associated with burning 1,000 to 2,500 barrels of oil to get up to flame stability and temperature on the coal unit. 

    Must-run nature of some coal plants because of location, transmission, voltage, or frequency issues that require them to run regardless of economics. 

    Some generators utilize average coal and transportation costs, rather than replacement costs.  In this case, the coal plant would then likely not be displaced by natural gas because a vast majority of the coal procured for this year in the East was purchased last year or before when coal prices were half or less the price. 

    Risk associated with the coal plant not being able to come back on line successfully and in a timely manner when it is needed again after being displaced.  Murphy’s Law is a big player on coal plant restarts.