Generating Electricity - Coal vs. Gas Cost

Comparison between renewable energy and fossil fuels is complicated by the different cost structures. the cost of renewables is essentially the  cost of construction, while the cost of fossil fuel plants includes a considerable fuel cost.

Articles on competition between coal and natural gas only take into account fuel prices. The logic appears to be that there is plenty of excess capacity and that the utility is flexible enough to choose which fuel to purchase. However, comparisons between fossil fuels and wind energy need to include fixed costs, because the fuel cost of wind is zero.

Table 1 compares the costs of generating using different fuels. Remembering that these are approximations, the results mirror the current situation - wind is cheapest and natural gas is most expensive.

Table 1. Comparison of Costs to Generate Electricity
Fuel Data as of 15 May 2013
(see Appendix for details of the calculations)


Fuel   NYMEX Cost of Fuel, $ Total  Generation  Cost, $/MWh
Coal 59.85 48.44
Natural Gas 4.02 53.35
Wind 0.00 45.30(a)

(a) “IRS: PTC Will Be worth Slightly More in 2013“, North American Wind Power, 04 April 2013



APPENDIX: MATHEMATICAL ANALYSIS

The cost of generating electricity consists of two parts, fixed and variable costs:

E = F + K --- (1)

Where E is the cost of electricity generation in $/MWh (Megawatt-hour), F is fixed costs, K is variable costs.

I estimated the cost of electricity generated using natural gas on my blog http://alanpeg.blogspot.com on 30 Jan. 2013:

E(ng) = 23.2 + 7.5H --- (2)

Where E(ng) is cost of electricity generated by natural gas in $/MWh and H is the cost of 1000 cu. ft. of gas using the Henry Hub price on the New York Mercantile Exchange (NYMEX) in dollars, which can be found at http://www.wtrg.com/. Since the number, 23.2, in dollars, accounts for fixed costs, the fuel cost is 7.5H.

The corresponding cost for coal is derived from data reported in “Year-to-date natural gas use for electric power generation is down from 2012”, from Today in Energy, issued by EIA on April 11, 2013.

K(co) = (20 + C)/2.5  --- (3)

Where K(co) estimates the variable cost of electricity generated by coal in $/Mwh and C is the price of coal ($/ton). Table A.1 reports the fixed cost, estimated by subtracting Equation (2) from the total cost of electricity.


Table A.1. Estimation of Fixed Costs for Coal
Used in Generating Electricity


Year Electric Gen. Cost, $/MWh   Coal Price, $/ton VariableCost, $/Mwh Eq. 2 Fixed Costs, $/MWH
2008 57.5 (a) 90 (c) 44 13.5
2013 51.5 (b) 60 (d) 32 19.5


(a) “Costs of Coal Fired Electricity” posted in Ecoal, Jan. 2011
(b) “Directory: Cents Per Kilowatt Hour”, downloaded from PESwiki on 11 May 2013.
(C)  “Regional Coal Spot Prices”, Federal Energy Regulatory Commission 07 Nov. 2008
(d)  Cost of a ton of coal on the NYMEX, which can be found at http://www.infomine.com/investment/metal-prices/coal/