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A one-two punch: Joint effects of natural gas abundance and renewables on coal-fired power plants

Author

Listed:
  • Harrison Fell

    (Division of Economics and Business, Colorado School of Mines)

  • Daniel T. Kaffine

    (Department of Economics, University of Colorado)

Abstract

Since 2007, coal-fired electricity generation in the US has declined by a stunning 25%. At the same time, natural gas-fired generation and wind generation have dramatically increased due to technological advances and policy interventions. We examine the joint impact of natural gas prices and wind generation on coal generation, with a particular focus on the interaction between low natural gas prices and increased wind generation. Exploiting detailed daily unit-level data, we estimate the response of coal-fired generation across four transmission regions within the US. Low natural gas prices and increased wind generation have both led to reductions in coal-fired generation. Furthermore, we find evidence that the interaction between natural gas prices and wind generation is statistically and economically significant, and led to a greater reduction in coal-fired generation than would be explained by either factor alone. In some regions, marginal responses of coal-fired generation to natural gas prices in 2013 were several times what they would have been had wind generation remained at 2008 levels. Similar sensitivities were found for responses to wind generation. As a consequence, our results suggest that policies such as carbon pricing combined with those that increase wind generation would be complementary in terms of their impact on coal-fired generation.

Suggested Citation

  • Harrison Fell & Daniel T. Kaffine, 2014. "A one-two punch: Joint effects of natural gas abundance and renewables on coal-fired power plants," Working Papers 2014-10, Colorado School of Mines, Division of Economics and Business.
    • Handle: RePEc:mns:wpaper:wp201410
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    File URL: http://econbus-papers.mines.edu/working-papers/wp201410.pdf
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    References listed on IDEAS

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    3. Cullen, Joseph A. & Reynolds, Stanley S., 2023. "Market dynamics and investment in the electricity sector," International Journal of Industrial Organization, Elsevier, vol. 89(C).
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    6. Holladay, J. Scott & LaRiviere, Jacob, 2017. "The impact of cheap natural gas on marginal emissions from electricity generation and implications for energy policy," Journal of Environmental Economics and Management, Elsevier, vol. 85(C), pages 205-227.

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