Coal-fired generators to switch to gas at about $ 7/mm cf
Electric utilities will switch from using coal to natural gas as fuel for their power plants when gas prices hit $
7/mm cf, Raymond James's top coal and natural gas analysts said, adding that a huge number of variables actually
create a $ 5 to $ 9/mm cf band where fuel switching is attractive.
Oil and gas analyst Marshall Adkins and coal analyst James Rollyson also cautioned that they have no historical
precedents to a wholesale switch out of coal to gas -- it has never happened in the US.
Using Central Appalachian coal prices of $ 125/ton, or, factoring in transportation and pollution allowances, an
all-in price of $ 6.94/mm Btu as their benchmark, Adkins and Rollyson said rising coal prices will, in the near term,
provide a floor for softening gas prices. But a wholesale switch is difficult to model, the analysts said, because of
the differing heat rate efficiencies of coal and gas plants that have excess capacity.
Other complications in fuel switching assessments include difficulties with the transmission grid which might not
link a gas plant to the market needing power and lower incentives for utilities that operate on a cost-plus basis to
switch. Further, at certain times of the year, namely summer, there won't be much excess gas-fired capacity to sell,
they said.
"Many envision a switching process where someone just flips a switch or valve and electric generation plants
seamlessly switch from coal to natural gas," the analysts said. "In the real world, coal-fired generation plants are
completely different plants in separate locations from gas-fired plants. In actuality, the coal plants and gas plants
may not even be owned by the same regional utilities. Furthermore, the electric transmission grid may not have
sufficient interconnectivity to allow switching," they added.
"In other words, there are numerous impediments that can affect switching to natural gas from coal, even after
reaching a favourable economic threshold," Adkins and Rollyson said.
