CERAWeek: Natural gas brings changes to power business

A surge in North American natural gas supplies is changing the economics of the electricity generation business and accelerating a shift to cleaner energy, executives of several power companies said during a panel today at CERAWeek 2011.

Low natural gas prices have recently made the commodity more competitive with coal, the leading feedstock for electricity generation, and forecasts the U.S. may now have 100 years worth of gas supplies in shale rock formations have boosted its outlook as a long-term fuel source for the power sector.

“I think natural gas and the large quantities we have . . . is a real game changer for our industry,” said Lewis Hay III, chairman and CEO of Florida’s NextEra Energy.

It not only represents a good opportunity to retire aging coal-fired power plants, “I see natural gas as being the great bridge to where we have to go,” he said.

Carbon emissions from natural gas power plants are more than 50 percent less than those of coal-fired plants, but still are about half a ton per megawatt hour, Hay said. In coming decades, renewables and nuclear must also make up a bigger part of the energy mix, he said.

Paul Smith, vice chairman of Tenaska Energy, said his company predicted four years ago that natural gas would become the dominant fuel in the power sector. At that point, company forecasts put the price of natural gas at between $7 and $8 per thousand cubic feet, he said. Today, amid abundant supplies, the price is roughly half that level.

The shale gas boom “gives us some time to step back” and plan for the future, said Tom Mitchell, CEO of Ontario Power Generation.

Low gas prices have put pressure not only on coal but on renewables to reduce costs, and power providers are taking advantage.

Hay said the cost of wind power equipment has come down between 20 and 25 percent in recent years, making it a buyer’s market.

But Chris Weston, CEO of Direct Energy, said the cost of renewables remains higher. Consumers, while they say they want a green option, are not willing to pay higher prices for energy, he said.

Hay rebutted that statement, calling it a fallacy to suggest there has to be a choice “between cost and clean.”

“I think we can clean up a lot without having much impact at all on customer’s power bills,” he said.