EIA: cheaper natural gas drives down electricity wholesale price

Average wholesale electricity prices at major trading hubs across the United States during 2016 were pushed down due to the low cost of natural gas. 

The low cost of natural gas, that the United States began exporting in 2016 in the form of liquefied natural gas (LNG), also encouraged increased use of the fuel for U.S. power generation in 2016, according to a report by the Energy Information Administration.

The cost of natural gas delivered to power generators averaged $2.78 per million British thermal unit (Btu) during the first 10 months of 2016, 17 percent below the average price during the same period in the year before.

Milder winter weather in early 2016 also helped keep power prices lower than during the winter of 2014–15 when wholesale prices in the Northeast peaked in response to cold temperatures and constraints on getting fuel into the region.

Wholesale power prices had slowly increased in December as colder winter weather set in, which led to increasing natural gas prices, EIA said.

In addition to keeping wholesale power prices relatively stable in 2016, the low cost of natural gas contributed to a shift towards increased natural gas-fired electricity generation, largely at the expense of coal-fired generation.

The amount of electricity generation fueled by natural gas between January and October 2016 was 6 percent higher than generation during the same period in 2015. In contrast, coal-fired electricity generation during the first 10 months of 2016 was down 12 percent compared with the same period in 2015.

The year 2016 was the first time that natural gas became the primary source of U.S. electricity generation, when measured on an annual basis.

Monthly natural gas-fired electricity generation first exceeded coal-fired generation as the primary source of electricity in April 2015. Natural gas was the leading source of electricity for nearly every month of 2016, accounting for an estimated 34 percent of total annual utility-scale power generation, compared with a 30 percent share for coal-fired generation.

Electricity generating facilities were scheduled to add about 24 gigawatts (GW) of utility-scale capacity in 2016, more than 90 percent of which were natural gas, solar, and wind additions.

Coal units accounted for most retirements during 2016, with more than 7 GW of coal-fired capacity retired during the year, equivalent to 2.5 percent of existing coal capacity in place at the end of 2015.