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Natural gas as a near-term CO2 mitigation strategy.
combined-cycle turbine plants with heat-recovery steam generators and steam turbines on the back end. Combined cycles are by far the most efficient of the three technologies, and were the preferred technology in the late 1990s fleet build-out.
In upcoming years, the coal fleet is likely to get less efficient as the inexorable bias towards lower-quality coal and tighter environmental standards continue. Moreover, as the gas fleet ramps up, it will preferentially favor combined cycles—the most efficient part of the fleet. Combined cycles today only run 35 percent of the time.
Given a 35-percent current capacity factor on 223 GW of capacity, the potential exists to produce an additional 1.3 million GWh/year from the existing combined-cycle fleet. The heat rate on this fleet—7,434 Btu/kWh in 2008—is likely lower on the margin, due to efficiency penalties at partial load.
How does this compare to the coal fleet? The most efficient coal plant in the country has a heat rate of 9,100 Btu/kWh—meaning that the plant consumes 2,000 more Btus of fuel for every kWh of output than does the combined-cycle gas turbine fleet. The rest of the coal fleet is worse.
To increase the operation of the U.S. combined-cycle fleet, the least efficient coal plants would be turned off first. These plants require nearly 15,000 Btu/kWh. Subsequently, more efficient facilities would be idled. CO 2 emissions would fall as a function of the fixed differential in fuel carbon content and variable differential in the efficiency of each marginal generating station.
This has implications for electricity price. By taking the fuel price history ( see Figure 1 ) and calculating the electricity-generation cost—given a 7,100 Btu/kWh marginal heat rate on the combined-cycle fleet and an 11,500 Btu/kWh marginal heat rate on the coal fleet (see Figure 3) —the higher value on the coal fleet shows the vulnerable coal plants on the margin. While it isn’t representative of the entire fleet, it indicates the point at which—on fuel price alone—there’s an economic logic to drive a shift in the dispatch order.
During the early and mid 1990s, there was a long period during which—had the current combined-cycle fleet existed—it would have been dispatched preferentially ahead of the marginal coal fleet. This further explains the explosion in gas fleet construction in the latter half of that decade. Not only were markets finally liberalized to allow greater private sector investment, but investors had reason to believe that there was an arbitrage opportunity from those combined cycles. Subsequent gas price spikes left many of those assets underutilized, but the fleet is now there, capital costs sunk, waiting for another opportunity. That opportunity might be here now, even before any consideration of CO 2 pricing.
But CO2 prices could well prove to be the final straw, as shown by the CO 2 price required to shift the dispatch over a range of gas and coal prices (see Figure 4) .
At current gas and coal prices, the break-even point already is reached. Moreover, even if gas returns to the $5 to $7/MMBtu price implied by current NYMEX futures, a carbon price of less