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Natural Gas Doubles Electricity Market Share: Why?

This year natural gas power plants will provide 24.5% of all electricity generated [in the US], a doubling of their 12% market share in 1990, according to Energy Information Administration data. EIA projects gas reaches 25% in 2012 and is likely to keep rising.

From 1990 to 2003, the electricity market share of gas rose from 12% to 16.7% or by about 40%. From 2003 to 2011, natural gas jumped from 16.7% to 24.5% or about 45%. Natural gas gains seem steady, unstoppable.

Why is natural gas like a Pac Man eating electricity generation market share? The capital costs of natural gas power plants are lower–much lower–than any of the main alternatives–coal, nuclear, wind. They are cheaper to build than anything else. This is the main competitive advantage of gas, but there are more.

Natural gas power plants face lower development risks and are easier to build than certainly coal or nuclear plants, because they generally face much less local or national opposition in the siting and permitting processes. They do so, because natural gas power plants emit little pollution–no mercury, arsenic, lead. Natural gas power plants meet the proposed EPA Air Toxic Rule for example.

Natural gas power plants–the air cooled models especially–require much less water than a coal or nuclear plant. In many parts of the country, water is becoming a scarce resource, as a result of population pressures and a changed climate and so the fact that natural gas power plants sip and do not guzzle water is a major advantage.

Natural gas power plants do not have a dangerous, expensive waste stream to manage, as nuclear plants do. Yet coal plants also have a waste problem, producing large amounts of coal ash that must be safely stored, but sometimes is not, with dire results for water quality and human safety.

Natural gas plants also are flexible and can be designed to run as baseload, intermediate, or peaking plants. Natural gas plants can quickly power up or down, making them ideal to provide back up power and to match with wind. Coal and nuclear plants cannot perform this function.

Natural gas power plants also use fuel efficiently and can be very efficient if they capture and use waste heat. In competitive power markets, where plants do not recover from captive, monopoly ratepayers fuel costs, the fuel efficiency of a plant is a key factor.

The key weakness of natural gas power plants has been both the volatility of natural gas pricing and periods of high natural gas prices that made them uneconomic to run in competitive electricity markets, during many hours of the year, when electricity market prices were low or average.

The shale gas boom that began in 2000 and took off in 2007 has driven natural gas prices below $5, while coal prices have increased. Shale gas means that natural gas is now often lower cost than coal, and plants that can run on either coal or gas burn gas.

All these strengths will drive up further the market share of natural gas power plants. It almost certainly will reach 33% within a decade and likely go higher, much higher, over time.

Facts of the Day, 16 August 2011