Construction costs for new natural gas power plants dropped to a new low in 2015, the U.S. Energy Information Administration (EIA) reports. The lower construction costs make it likely that natural gas will continue to gain electricity market share by replacing existing coal power plants.
In a report released yesterday, EIA documented that the cost of natural gas generators installed in 2015 was $696 per kilowatt of nameplate capacity, down from $965 in 2013. New combined cycle natural gas generators were the least expensive source of new natural gas power, coming in at $614 per kilowatt. At $614 per kilowatt, and spread out evenly over the 50-year expected lifespan of a new natural gas facility, the construction costs of a new natural gas facility add less than 1 percent to electricity costs.
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A 2016 study by the Institute for Energy Research documented that electricity from existing combined cycle natural gas power plants cost $34.4 per megawatt hour, versus $39.9 for coal power – a 14 percent savings. Accordingly, the low cost of building new natural gas facilities makes it economically wise to build new natural gas facilities to replace existing coal facilities.
It is often argued that it is economically foolish to shut down coal power plants that have already been paid for in order to build new natural gas power facilities. Such an argument, however, is analogous to arguing it never makes economic sense to buying a new car. The majority of coal power plants are more than 40 years old and on the downside of their projected lifespan. This means they will require substantial equipment upgrades or full replacement in the near future. A person who owns a 40-year-old, 1977-model automobile with 300,000 miles on it has already paid for the automobile in full. Buying a new car will incur an immediate additional expense. However, the 1977 automobile gets far fewer miles per gallon, needs more regular maintenance, has many parts that will need expensive repairs or upgrades, and still won’t provide the comfort, performance, or amenities of a new car. Given all this, it often makes economic sense to purchase a new car even if it is physically possible to keep the 1977 car on the road. For this very reason, most consumers have automobiles that are less than 40 years old.
One caveat is that natural gas prices vary somewhat by region and facility. Nevertheless, on average it will save consumers money to replace existing coal power plants with new natural gas facilities.
Our affordable energy future keeps getting brighter.