PJM Case Study: Changing from Coal to NatGas for Power Generation

PJM is a regional transmission organization (RTO) coordinating the movement of wholesale electricity in all or parts of 13 states and the District of Columbia (essentially Appalachia or the northeastern U.S.). SNL Financial has crafted an excellent analysis of natural gas deliveries to the electrical generating plants of the PJM and has found that since 2008, natgas deliveries have doubled to PJM power plants–mostly due to their geography, sitting atop the Marcellus and Utica Shale plays.

The article beings this way:

Natural gas-fired power generation has become increasingly economical over the last five years. This has created a boom in gas deliveries to power plants in the PJM Interconnection LLC market, which sits atop prolific shale gas formations.

According to an SNL Energy analysis of monthly fuel deliveries data reported on the EIA 923 filing, the volume of natural gas delivered to power plants in PJM has more than doubled during the past five years, increasing to a total volume of 1,115,022 MMcf in 2012 from 440,853 MMcf in 2008. Over this same period, the annual volume weighted average cost of gas delivered to these plants fell to $3.21/MMBtu in 2012 from $10.41/MMBtu for 2008.

The low level of natural gas prices in 2012 was a catalyst for increased competition between gas and coal in the PJM dispatch curve. A recent SNL Energy analysis found that fuel switching is expected to continue in PJM, with the potential for an annual average increase of 420 MMcf/day in natural gas demand for 2013 due to coal displacement. Another factor that could be driving the increased usage of gas-fired generation is the retirement of coal units. SNL Energy is tracking more than 11,000 MW of coal-fired capacity in PJM that is expected to retire over the next 10 years, according to company announcements.*

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*SNL Financial (Apr 8, 2013) –¬†Gas guzzlers: Delivery of natural gas to PJM plants more than doubles since 2008