Clear Skies Act and Carper Bill Under High Gas Prices
Natural gas use is becoming increasingly more important to the electric power industry in
meeting their generation needs and achieving environmental compliance. Over the past
few years, natural gas price volatility has increased. Because of the uncertainty in natural
gas prices, the impact of higher gas prices was analyzed for the Clear Skies 3-P Mercury
Safety Valve, Carper 4-P High Offset, and Carper 4-P No Offset cases. The difference in
natural gas wellhead prices between the Reference Case Gas Price20 and their respective High Gas Price21 scenarios grows over time with natural gas prices in the High Gas Price scenarios exceeding natural gas prices in the Reference Case Gas Price scenarios by 6-7 percent in 2005 and 26 - 31 percent by 202522.
Generation, Fuel Use, and Capability
Higher natural gas prices lead to lower natural gas fuel use and increased coal and renewable fuels use across scenarios. The largest impacts occur in the Carper bill scenarios because they rely more heavily on natural gas as a compliance strategy to meet the more restrictive SOx, NOx, and Hg emissions limits as well as the additional limit on carbon dioxide emissions. The figure below illustrates the impact of higher natural gas
prices on the Carper 4-P High Offsets scenario, a scenario that relies relatively more on
natural gas generation to achieve compliance than some of the other scenarios examined.
As illustrated in the Figure 46 below, higher natural gas prices result in a 12-percent
decline in gas-fired generation and offsetting increases in coal-fired and renewable
generation.
The impacts on natural gas fuel use and capacity additions are similar to the impact on n atural gas-fired generation. Higher natural gas p rices result in less natural gas fuel use across scenarios, as generating fuel shar e is lost to coal-fired, renewable, and petroleumf ired generation. The higher natural gas prices also affect capacity expansion choices in the power sector resulting in less natural gas-fired capacity and more coal-fired and
renewable capacity. By 2020, cumulative unplanned capacity additions of natural gasfired generation are 17 to 26 gigawatts less in the High Gas Price scenarios than in the Reference Case Gas Price scenarios. The natural gas-fired capacity displaced in the High Gas Price scenarios is replaced with coal-fired and renewable capacity.
Electricity Prices and Resource Costs
Both electricity prices and resource costs are higher in the High Gas Price scenarios than in the Reference Case Gas Price scenarios due to the assumed higher natural gas prices. In the High Gas Price scenarios, electricity prices are 2.2 percent to 4.0 percent higher
than in the Reference Case Gas Price scenarios in 2020. The smallest increase (2.2
percent) occurs in the Carper 4-P High Offsets High Gas Price scenario and the largest
increase (4.2 percent) occurs in the Carper 4-P No Offset High Gas Price scenario.
Typically, the larger the share of natural gas-fired generation the larger the impact of
higher natural gas prices; however, the percentage price increase in the Carper 4-P High
Offsets High Gas Price scenario is less than the percentage price increase in the Clear
Skies 3-P High Gas Price scenario due to the generation performance standard contained
in the Carper bill that results in a smaller electricity price increase than in the Clear Skies
bill. Resource Costs are higher in the High Gas Price scenarios than in the Reference
Case Gas Price scenarios. The resource costs increases are in proportion to their reliance
on natural gas-fired generation and the higher fuel prices and the more capital-intensive
coal-fired and renewable generation capacity, replacing natural gas-fired capacity like
coal-fired and renewable technologies. Resource costs increase of 1.3 percent in the
Clear Skies 3-P Mercury Safety Valve High Gas Price scenario, 1.6 percent in the Carper
4-P High Offsets High Gas Price scenario and 1.7 percent in the Carper 4-P No Offsets
High Gas Price scenario. |
