It is time to adapt to new rules of the game, and change procurement tactics. Read these five effective strategies for managing escalating input costs.
Natural gas as a near-term CO2 mitigation strategy.
Discussions on CO 2 reductions tend to start from a presumption of near-term economic disruption coupled with long-term investments in green technology. The presumption isn’t right. Simply by ramping up our nation’s generation of electricity from underutilized natural gas plants and ramping down our generation from coal, the United States could reduce its total CO 2 footprint by 14 percent to 20 percent tomorrow with no disruption in access to energy services and no new infrastructure investments. The Waxman-Markey proposal to reduce CO 2 emissions by 17 percent over 10 years is constrained only by its ambition.
The scale and potential for immediate impact deserves consideration, as even partial action toward this goal would have dramatic political and environmental consequences, establishing U.S. leadership and credibility in global climate negotiations.
About half of U.S. electricity is produced from coal, while roughly 20 percent comes from gas. However, this is caused by operations, not installations. The U.S. coal fleet runs most of the time, while (comparatively larger) gas plants tend to run intermittently, only during those hours when the lower cost coal/nuclear/hydro is unable to serve the full needs of the electric grid.
Thus, even though coal contributes far more to our current electricity needs, the existing gas fleet has a much larger potential to meet future needs.
Today’s gas fleet mostly was built out after the electric regulatory reforms of the late 1990s—and to a significant degree, it isn’t used. Take, for example the capacity factors 1 of the gas and coal fleets. While the coal fleet tends to run, and run often, the gas fleet does not.
Therein lays the potential. A driver stuck in traffic might glance enviously at an empty commuter train buzzing past the highway; likewise, one should take a closer look at the potential to shift electricity generation away from a dirty, congested and comparatively small resource and into one that is larger, cleaner and comes with a lot more legroom.
Why doesn’t the gas fleet run more often? This simple answer is fuel price. Natural gas historically has been more expensive than coal, giving an economic advantage to coal-fired generators (see Figure 1) .
However, the price of fuel isn’t the price of electricity. Electric price is a strong function of fuel cost, but also depends on operating costs and fuel conversion efficiencies. Fuel conversion efficiencies tend to be higher for gas plants relative to coal—and this advantage is growing with time, steadily eroding the coal fleet’s fuel cost advantage (see Figure 2) .
The steady reduction in MWh/ton of coal has been caused by a shift toward low Btu, compliance coals, but also towards an increasing parasitic load on plants to operate Clean Air Act-mandated pollution-control devices. Meanwhile, there exists a technology-driven steady increase in MWh/scf of natural gas.
Broadly speaking, the U.S. gas fleet consists of three distinct technologies: 1) gas-fired steam boilers; 2) simple-cycle turbine plants; and 3)