This working paper was published as WP2014-10 in the Colorado School of Mines Division of Economics and Business Working Paper Series while CEnREP Affiliate Harrison Fell was on faculty there. When referencing this manuscript, please cite it as part of Colorado School of Mines’ Division of Economics and Business Working Paper Series (full information is contained on the cover page for the linked manuscript below).
ABSTRACT: 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.