Wednesday, May 13, 2009

Natural Gas Costs May Have Added CO2 Abatement Cost

NEW YORK, May 12 (Reuters) - Proposed U.S. climate change legislation could cause power prices in the ERCOT market in Texas to jump about $10 billion or $27 per month for the average consumer by 2013, the Electric Reliability Council of Texas (ERCOT) said Tuesday.

To reduce carbon emissions in the region to 2005 levels by 2013, ERCOT, the grid for most of Texas, forecast carbon allowance costs must rise to between $40 and $60 per ton.

Burning fossil fuels such as coal and natural gas to generate electricity produces about 30 percent of U.S. carbon dioxide emissions.

More than 80 percent of the generation in ERCOT burns fossil fuels, with 41 percent from natural gas, 27 percent from natural gas and oil, and 16 percent from coal.

Coal plants, which produce about twice the CO2 of a comparable natural gas plant, usually operate around the clock because coal plants are less expensive to run. All but the most efficient natural gas plants usually run only during peak hours.

To come up with its projections, ERCOT forecast natural gas prices of $7 per million British thermal units and consumer demand at currently forecast growth levels.

If natural gas prices rise over $7 per mmBtu, the cost of the allowances would climb, boosting power costs. With natural gas at $10 per mmBtu, for example, ERCOT forecast power costs could climb by about $20 billion by 2013.

Natural gas prices have swung widely over the past year, peaking last summer above $13 before skidding as low as $3.15 a couple of weeks ago. Natural gas prices are currently trading on the NYMEX in the $4.50 per mmBtu area.

But electric costs would not rise as much as forecast if higher rates cause consumers to cut back on power usage and/or generating companies build more wind farms than forecast, Continued...

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