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Rising gas use will raise US electricity prices

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World Coal,

Rising use of natural gas in the US electricity generation mix would result in price increases in both natural gas and electricity in all sectors, according to the US Energy Information Administration (EIA).

The EIA found that by 2040 electricity prices would be over 8% higher than its reference case if coal plant retirements accelerate beyond current expectations. In a combined “Accelerated Coal and Nuclear Retirements” scenario, the increase in prices would be 12% higher than its reference case.

“Retail electricity prices vary in the accelerated retirement cases, because natural gas prices are a key determinant of wholesale electricity prices, which are in turn a significant component of retail electricity prices,” the EIA report said. “Accordingly, the cases with the highest delivered natural gas prices also show the highest retail electricity prices.”

While natural gas prices have been at historic lows in the US, there is no guarantee that this will remain so: as the International Energy Agency Coal Industry Advisory Board (IEA CIAB) said in a recent report “the issue of volatility of price [of gas] remains”, noting that between June 2012 and June 2014, the price of natural gas rose by 42%.

“Long-term stability of coal pricing has been a major factor in the stability of US electric power prices [providing] a competitive advantage,” the IEA CIAB concluded. Yet, this could be a stability the US is soon to lose.

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