While low natural gas prices and tighter harmful emissions standards are making it the preferred fuel for generating electricity, public utilities are expected to slowly shift to natural gas, because of the cost of building new plants and pressure to ensure a reliable supply, according to a Moody’s report released today.
Regulated and public power utilities may be slower than the unregulated power companies and merchant power projects to make the actual shift because of their mandate to ensure a continued electricity supply, according to the report.
“We see the regulated and public power utilities as less willing to make quick switching decisions, because they tend to be focused on longer-term reliability issues than the unregulated power companies, which tend to be more focused on near-term economics,” the report stated.
Shifts towards natural gas and renewable energy are expected to reduce reliance on coal for electricity generation by 40 percent by 2020, because of the low natural gas prices and an increased focus on lower harmful emissions increase interest in natural gas and renewable energy.
Utilities’ current commitments to coal deliveries could also slow the transition to natural gas.
“Managing coal deliveries and rail transportation contracts could create future litigation risk,” the report stated, noting that a forced burning of coal to reduce growing coal piles could possibly create further regulatory issues for utilities.
High costs and licensing issues also make any future investment in nuclear energy unattractive as an alternative to coal, particularly for unregulated companies.
“Because unregulated power companies make investment decisions on economic factors, and do not enjoy the benefits of authorized regulated recovery of construction costs, the sustained period of low natural gas prices will destroy the economics of any new nuclear project,” the report said.