Cheap gas is US coal killer

For the first time since the creation of its electricity grids renewable energy is generating more power than coal fired power in the United States. While this might sound like a victory of renewables over coal, the real winner in this transformation is gas.

Monthly data produced by the US Energy Information Administration showed that coal fired electricity generation fell to 171,828 gigawatt hours in March 2020, a 34 per cent drop from March last year.

This was not a COVID-19 demand induced drop. Total electricity demand across the US fell by only 3.3 per cent on a year on year basis.

Intermittent renewable generation like wind and solar has been making strong gains of a low base in the US, increasing generation by 18 per cent in the last year. They now account for 10 per cent of total US electricity generation.

But most of the displacement of coal fired generation has been by gas generators. Low cost gas derived as a by-product from domestic shale oil production now fuels 40 per cent of all electricity generation in the US.

The cost of producing gas from US shale fields is around $US2/GJ, around half the cost of production in Australia, because the US gas is produced as a by-product of oil extraction. Australia’s unconventional gas fields are “dry”, so the gas sale price has to bear the full costs of development and extraction.

US greenhouse emissions are about 10 per cent below 2005 levels, mainly as a result of the price driven switching from higher emissions coal to lower emissions gas, supported by continued growth of renewables.

The low cost of gas in the US has meant the displacement of its ageing base load (coal and nuclear) generators is being led by gas and supported by renewables. This is in sharp contrast to Australia where wind and solar are leading the displacement. Both economies are operating in a national climate policy vacuum.

Australia’s electricity investment in renewables has been driven by the falling cost of renewables, a decade of bipartisan subsidies through the Renewable Energy Target and higher gas prices which have both increased electricity prices and suppressed the same scale in gas generation investment.

Ironically, the future of continued low gas prices in the US may accelerate the decline of coal fired generation in the US as a cheaper and more flexible replacement. The higher cost of gas in Australia is slowing the pace of coal fired power station retirement, as generators look to alternative storage options to firm large scale renewables.