COAL V NATURAL GAS: A DEEPER UNDERSTANDING OF SWITCHING

The ‘thermal bucket’ of power generation pits gas against coal in a largely economic battle described by gas analysts in the popular ‘coal to gas switching’ metric. Coal economics vs gas is closely watched by gas traders, power merchants and utilities who make dispatch decisions for their fleets of gas and coal plants. On the surface, coal to gas switching seems like a simple calculation of economic optimization. In reality, it is far more complex than an analysis of gas and coal prices would imply. In just one example of this utilities and power merchants can be hesitant to shut off a coal fired power plant because of cycling costs.  Instead, they run coal fired power plants at higher or lower utilization rates throughout the day, sometimes in spite of unfavorable economics.

An example from two PJM coal plants in May, 2020 where swelling coal inventory at the plant level caused uneconomic behavior.

‍In total, the amount of substitution demand for coal fired power versus natural gas fired power is about 5 bcf/d, which is significant to both natural gas and coal. But coal to gas switching ideally needs to not only correctly forecast the amount of switching it also needs to predict the timing. Many generator incentives cannot be known including the bulk inventory price of input coal which can lag a generator’s response to price change. Coal inventory planning of on-site coal stocks can also cause uneconomic behavior. Scarcity of resources can cause coal plants to save their inventory for the most lucrative days while excess supply can incentivize excess coal generation even in the face of better gas economics. Even when there is a purely economic decision to switch to burning coal or natural gas for power generation, the timing of that decision is complex and often times delayed and inconsistent. Traders and analysts who hope to better forecast coal to gas switching in aggregate need an understanding of individual plant level economics. Including inventory monitoring of coal stocks. Plant level inventory data illuminates the high and low stockpiles that cause uneconomic behavior, it also allows for a more realistic model of inventory costs based on the timing of builds at each plant.

A 3d rendering of a coal plant stock pile built using satellite photogrammetry.

‍SynMax is proud to have built the first ever plant level coal inventory monitoring product. This product, called Vulcan, will be released next month as an optional add-on exclusively for Hyperion subscribers. This monitoring is possible thanks to the technology of photogrammetry where multiple satellite images at different angles can be combined into a 3d model of topography. Vulcan will launch with 150 coal plants covered representing 90% of coal generation in MISO, ERCOT, PJM and SERC. Thanks to abundant archival imagery we will also be providing at least one year of historical data for each plant, and we hope to expand this to three years in the coming months.