EPA Regulations Set To Increase Natural Gas Prices By 150 Percent

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Michael Bastasch Contributor
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Environmental Protection Agency policies resulting in the shutdown of coal-fired power plants will contribute to a 150 percent price hike for natural gas, accompanied by a 7 percent rise in electricity prices, according to government data.

The U.S. Energy Information Administration (EIA) projects that the accelerating rate of coal plant retirements will cause natural gas prices to rise from $3.44 per million British thermal units (Btu) in 2012 to $5.91 per million Btu in 2025. This would boost retail electricity rates for households and businesses from 9.8 cents per kilowatthour to 10.5 cents per kilowatthour — a 7 percent price jump by 2025.

Gas and power prices are driven even higher by 2040 as more coal plants are shuttered. Natural gas prices will increase 150 percent over 2012 levels and retail power prices will rise 22 percent over 2012 levels as more coal plants are retired.

EIA says that “low natural gas prices and slower growth of electricity demand” have stifled coal’s competitiveness as a power source. But EIA also points out that many coal plants “must comply with requirements of the Mercury and Air Toxics Standards (MATS) and other environmental regulations.”

MATS is one of the costliest EPA regulations ever crafted, costing about $10.2 billion annually. The rule aims to lower mercury emissions and other pollutants from coal plants, but the regulation is resulting in the shuttering of hundreds of coal plants across the country.

EIA says that 50 gigawatts, or 16 percent, of the U.S. coal fleet is set to be taken offline by 2020 — however, 90 percent of these shutdowns will occur before 2016 when MATS goes into full effect. Despite setbacks, EIA notes that coal will still be the single largest source of electricity generation until 2034, when natural gas overtakes it.

But as coal plants are shuttered, they will primarily be replaced with natural gas-fired power plants and some renewable generation. Generating more power from gas means that the price will go up from today’s low levels to much higher levels in the coming decades. This will also drive electricity prices skyward.

EIA says that “because natural gas prices are a key determinant of wholesale electricity prices, which in turn are a significant component of retail electricity prices. Accordingly, the cases with the highest delivered natural gas prices also show the highest retail electricity prices.”

“Accelerated retirements of coal-fired and nuclear electricity generation capacity would cause natural gas and renewables to gain an increased share in the nation’s electricity generation mix,” EIA adds. “Natural gas is most often the lowest-cost option for replacement capacity, while renewable generation grows, spurred by the increased economic competitiveness of solar and wind technologies toward the end of the projection period.”

“The rising use of natural gas in the electric power sector results in price increases for both natural gas and electricity in all sectors,” EIA says.

The bottom line: get ready for electricity price increases.

But it’s not only higher prices that Americans should be worried about, as retiring coal plants means the U.S. will be generating less power overall because coal provides most of the baseload power in the country. EIA notes that “removing coal capacity results in lower overall levels of generation.”

Federal energy regulators are worried that MATS could lead to “rolling blackouts” across the country because of premature coal retirements.

“We’re closing an enormous amount of coal generation, through a variety of rules, and a good number of those plants are set to retire next April,” Federal Energy Regulatory Commission commissioner Philip Moeller told Platts Energy Week.

Regulators warn that this is troubling news in light of the harsh weather the country experienced this past winter. Natural gas and nuclear plants were unable to operate and there weren’t enough pipelines to get heating fuels to regions of the country. As a result natural gas and energy prices spiked and some areas would have seen blackouts if it weren’t for coal plants working overtime to keep the power on.

“But most people would say about 90% of that capacity was running and used and necessary during the polar vortex events,” Moeller noted.

“So the question is: Are we going to have mild weather for the next 2-3 years? If so, we can probably get through it. But if we have more extreme weather events, like we had this winter, and that power is no longer available, we could be in a real situation that’s not good for consumers,” he added.

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