http://pesd.stanford.edu • Stanford Universityhttp://pesd.stanford.edu • Stanford University
Policy Levers on Coal-Gas Competition
Mark ThurberAssociate Director, Program on Energy and Sustainable DevelopmentStanford University
NGI Workshop: Global Competition Between Coal and Natural GasTresidder Memorial Union, Stanford University, CaliforniaOctober 15th, 2018
Challenges for natural gas relative to coal
• Not cost competitive with coal when delivered as LNG• Dysfunctional gas pricing and markets• Better for the environment... but not good enough?
LNG generally not cost competitive with coal
Data sources: IHS McCloskey, Bloomberg
• In many geographies, gas not priced based on supply and demand
Many gas-producing countries underprice gas to favored consumers
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Natural Gas Consumption (Bcm)
Fertilizer Power Generation Domestic Fuel Captive Use / LPG Shrinkage Petrochemicals Industrial Fuel Others
Data sources: Ministry of Statistics and Programme Implementation
Gas Usage by Sector in India
• Underpricing, subsidies diminish incentives for expanding supply• Gas supply chain often ends in power companies that can’t pay
Coal + Renewables (“German model”)
• Want green credibility? Choose renewables• Want cheap power at scale? Choose coal=> Gas occupies awkward middle ground
Policy levers that help gas relative to coal
• Support for international shale gas development• Gas pricing and market reform (but requires reliable
downstream customer)• Air quality regulation• Carbon pricing• Very high renewable energy penetration
Air quality regulation adds cost to coal (but coal might still be cheaper than gas)
Data source: Health Effects Institute 2016
• Industrial sources more difficult to control than power plants (opportunity for gas)
Simulated Contributions of Coal Burning to PM2.5 in China
All Coal Burning Power Plants
Industrial Domestic
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LCOE
($/M
Wh)
Carbon Price ($/tonne CO2)
GasCoal
Nuclear
Solar
Effect of carbon price on power plant competitiveness
Assumptions for LCOE calculationsDiscount rate = 5%Coal-fired plant: $2500/kW, 8.8 MMBtu/MWh, 0.8 tCO2/MWhGas-fired plant: $1000/kW, 6.6 MMBtu/MWh, 0.4 tCO2/MWhNuclear plant: $6000/kW, 10.5 MMBtu/MWh, 0 tCO2/MWhSolar plant: $2000/kW, 0 tCO2/MWhAll at 80% capacity factor except solar at 20%Fuel prices ($/MMBtu): coal - 2.7; gas - 8; nuclear - 1
RENEWABLES HAVE THEIR OWN INCENTIVES
NUCLEAR HAS ITS OWN PROBLEMS
Estimated Generation Cost(New Generic Power Plant Outside North America)
• Carbon price of $25-30/tonne CO2 makes gas and nuclear competitive with coal
• But in the real world...
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LCOE
($/M
Wh)
Carbon Price ($/tonne CO2)
GasCoal
Effect of carbon price on power plant competitiveness
• Carbon price of $25-30/tonne CO2 makes gas and nuclear competitive with coal
• But in the real world...
Estimated Generation Cost(New Generic Power Plant Outside North America)
a carbon price matters most for gas
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00.10.20.30.40.50.60.70.80.9
LCOE
($/M
Wh)
Nuclear/Coal/Gas Capacity Factor
Gas
CoalNuclear
Solar
Effect of capacity factor on power plant competitiveness
[email protected] / 10
• Lower capital cost of natural gas makes it better able to absorb low capacity factors of a high-renewables world
Estimated Generation Cost(New Generic Power Plant Outside North America)
