Low natural gas prices and environmental regulations have led many US utilities to retire their coal-fired power plants and build new natural gas generators. But, because coal prices tend to be more stable than natural gas prices, some worry that this trend will lead to more volatile electricity prices.
Dr. Anastasia Shcherbakova, an applied economist in the Texas A&M Department of Agricultural Economics and a Research Fellow with the Mosbacher Institute, did the math. She and her collaborators examined data from the Pennsylvania-New Jersey-Maryland power grid to see what happens to electricity price volatility when coal generators unexpectedly go offline and found that electricity price volatility was actually lower during hours when the natural gas generators were setting the price of electricity. The author concludes that because natural gas generators are more flexible and better able to respond to changing market conditions, they actually reduce price volatility, meaning that environmental benefits do not have to come at the expense of greater price risk.
You can read about it in “Financial Implications of Coal-to-Gas Fuel Switching.”
The Takeaway is a publication of the Mosbacher Institute for Trade, Economics, and Public Policy at the Bush School at Texas A&M University.