Most of the decline in coal consumption is attributable to the “coal/gas switching” that occurs when the price of natural gas becomes more economical than the price of coal to fuel generation of electricity. Traditionally, coal was considered a base load fuel for power plants because it was a more economical source than natural gas. The growth of natural gas production due to the horizontal drilling in shale fields, the demand destruction caused by the “Great Recession,” and the lack of Winter demand this season has continued to pressure natural gas prices down to a point where they are consistently competing with coal as the fuel of choice for generating electricity.
As a result, EIA projects that natural gas consumption for generating electricity will rise from 24.8% in 2011 to 27.1% in 2012. Conversely, coal usage is expected to drop from 42.4% in 2011 to 40.4% this year (see below).
The importance of this trend is the continuing focus that the industry has put on natural gas as the future fuel of choice in the generation of electricity. Coal plants emit twice as much CO2 as does a typical combined cycle natural gas plant, and EPA initiatives designed to curb various emissions will only make coal-generated electricity more expensive in the future.
As a result, most of the new power plants being planned and developed are for natural gas-fired and renewable generation. An abundance of cheap natural gas along with restrictions on harmful emissions should continue to pressure the use of coal to create our electricity and keep the focus on this cleaner form of energy in the future.
Images Sources: EIA