The relationship between natural gas prices and power prices with some information on plant efficiency and how it can increase prices dramatically.
ngsa.org
Note that the lack of a relationship between natural gas prices and power prices holds true regardless of the efficiency of the natural gas
turbines. Natural gas is the most likely fuel to have been used as the incremental or marginal fuel for producing power for sale onto the
California Power Exchange market. Often the marginal units are inefficient units that are brought on line last because they are the most
expensive to run. Thus, the amount of Btus required to generate a megawatt-hour of power is much greater than the level required for more
efficient units.
For instance, it would not be surprising if inefficient natural gas units had a heat rate of 16,000 Btu/Mwh instead of the 8,000 Btu/Mwh or
less generally used as an indication of the average heat rate of new combustion turbines.[8] The effect of a natural gas price increase on the
cost of power generation would be twice as much for a gas turbine with a 16,000 Btu/Mwh heat rate than for one with an 8,000 Btu/Mwh
heat rate. Using this example, when natural gas reached $10/MMBtu in late December 2000, the cost of power from these inefficient natural
gas generators would have been at least $160/Mwh. Thus, the cost of gas in these units contributed to a higher wholesale cost of power. But
the commodity cost of natural gas, while high, was only a contributing, not a causal, factor. |
