2013 and the Transformation in Power Production

National Public Radio recently reported on the transformation of the power industry from coal to natural gas; it focused on Georgia Power’s growth in electric generating plants from natural gas.  This transformation is part of a broader, global move from coal to natural gas in power generation.  The World Energy Outlook 2012 report forecasted that, even with new, restrictive policies, global demand for coal will grow at 1 percent compound average annual growth rate between now and 2035.  Growth in natural gas consumption on the other hand will surpass that with a compound annual growth rate of 1.6 percent and a whopping 47 percent increase in consumption between now and 2035.

Without any change in policy, the World Energy Outlook 2012 forecasts substantial growth in demand for electric power.  In OECD countries it will grow by 16 percent, but in non-OECD countries electric power consumption will grow by 54 percent under the same scenario of no change to policy.  Much of this growth in power production will continue to depend on traditional fossil fuels including coal.  However, the extent to which there is an increasing transition to other fuels is evident in the report.

Across the globe, the report forecasts that gas-fired power generation will grow by almost 80 percent under a scenario that includes introduction of some new policies associated with carbon restrictions.  The report also forecasts that two-thirds of new plants will be built in non-OECD countries.  There are many reasons for the growth in natural gas-fired power plants.  They require lower capital costs and they permit shorter construction times.  With the increased production of natural gas from fracking, especially in the United States, prices for natural gas remain low as another advantage for power production from natural gas-fired plants.  As this blog has also noted in the past natural gas also produces fewer carbon emissions.

Changes in power production will come from increased use of renewables as well.  The production capacity from renewables almost triples in one scenario, but its growth is disproportionately in Europe, India and China.  Nuclear power will grow at a modest pace as a result of the disaffection with nuclear power that resulted from the disastrous earthquake in Japan, and power production from oil will continue to decline.

Where there will be the greatest change in power production is in from natural gas.  The US stands to benefit from this change with its very large available natural gas supply, its sophisticated technology, and the potential for favorable regulation associated with fracking.  What is unlikely to change is the demand for energy from developed countries and especially developing countries, as I wrote in my last entry.

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