Division of Economics and Business Working Paper Series A one-two punch: Joint effects of natural gas abundance and renewables on coal-fired power plants

Since 2007, coal-fired electricity generation in the US has declined by a stunning 25%. At the same time, natural gas-fired generation and wind generation have dramatically increased due to technological advances and policy interventions. We examine the joint impact of natural gas prices and wind generation on coal generation, with a particular focus on the interaction between low natural gas prices and increased wind generation. Exploiting detailed daily unit-level data, we estimate the response of coal-fired generation across four transmission regions within the US. Low natural gas prices and increased wind generation have both led to reductions in coal-fired generation. Furthermore, we find evidence that the interaction between natural gas prices and wind generation is statistically and economically significant, and led to a greater reduction in coal-fired generation than would be explained by either factor alone. In some regions, marginal responses of coal-fired generation to natural gas prices in 2013 were several times what they would have been had wind generation remained at 2008 levels. Similar sensitivities were found for responses to wind generation. As a consequence, our results suggest that policies such as carbon pricing combined with those that increase wind generation would be complementary in terms of their impact on coal-fired generation. ∗We thank Ventyx for providing access to their Velocity Suite database tool. Seminar and workshop participants at Colorado State, CU Boulder, the Front Range Energy Camp and the CU Environmental and Resource Economics Workshop provided valuable feedback.