Electric Generation Investment in a Time of Natural Gas Price and Carbon Pricing Uncertainty: A Modeling Analysis
Abstract
Low current and forecasted natural gas prices are spurring investment in new gas-fired
electric generation in the eastern United States. In both regulated territories and
organized electricity markets, natural gas power is beginning to displace significant
amounts of retiring coal generation. However, the market price of natural gas has
historically been volatile and unpredictable. If gas prices rise substantially from
current forecasts in the next two decades, will customers face sharply higher electricity
prices? What if a carbon tax accompanies this outcome? This modeling analysis sheds
light on these questions by modeling long-term capacity expansion based on current
assumptions, and then assessing how economic dispatch in three regions - the Southeast,
PJM Interconnection, and ISO New England – will respond to alternate versions of future
gas prices and carbon taxes.
The results indicate that heavily gas-dependent regions like ISO New England would
absorb the imposition of a carbon tax without major electricity price increases, but
that it would face substantial price increases with sustained, elevated natural gas
prices. The results also suggest that portfolios in the Southeast and PJM will skew
more heavily to natural gas generation in the future if investment decisions are made
under current conditions and assumptions. If this occurs, these two regions could
face sharp electricity price increases with either higher-than-expected natural gas
prices or the imposition of a carbon tax.
Type
Master's projectPermalink
https://hdl.handle.net/10161/6597Citation
Fitzpatrick, Kristopher (2013). Electric Generation Investment in a Time of Natural Gas Price and Carbon Pricing Uncertainty:
A Modeling Analysis. Master's project, Duke University. Retrieved from https://hdl.handle.net/10161/6597.Collections
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