Bernstein sees 11% of US coal fleet costlier to run than gas in 2012
Houston (Platts)--16Dec2011/448 pm EST/2148 GMT
Forward fuel prices indicate that some 11% of US coal-fired
generation will become more costly to operate than gas-fired generation
in 2012, according to a Bernstein research report released Friday.
Forward prices have Appalachian coal priced at $70/ton in 2012 and
$75/ton in 2013, compared with gas forward prices at $3.70/MMBtu in 2012
and at $4.35/MMBtu in 2013.
While these forward prices indicate a delivered cost of coal that is
still about 12% lower on a Btu basis than natural gas in 2012 and about
21% lower in 2013, the heat-rate factor associated with coal-fired
generation more than offsets the cost-only advantage coal has over gas,
the Bernstein report states. The US coal fleet requires an average 33%
more Btus to generate a megawatt hour of electricity than do
combined-cycle gas turbine generators.
The report, issued by the research arm of Sanford Bernstein investment
advisers, states that with an increase in gas prices to $4.35 in 2013,
only about 7% of coal-fired generation would be more costly to operate
than gas in 2013 and 2014.
The US states most likely to see to the coal displacement are the ones
with higher transportation costs, including Washington, California,
Nevada, Massachusetts, New Jersey, Michigan and Louisiana, to name a
few.
The potential shift to gas from coal will not be immediate, however, as
plants with coal supply contracts priced below current forwards will
have no incentive to reduce their output, the Bernstein report states.
The real turn of the tide will occur as these contracts expire, when new
contracts struck at current forward prices will price them out of the
market.
New contracts at the current forward price levels are not likely,
though, as mining companies may offer discounts to utilities to keep
their coal plants operating, the Bernstein report said. Utilities may
also opt to curtail some coal-fired generation.
--Leticia Vasquez,
leticia_vasquez@platts.com
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