Association for Public Policy Analysis & Management

Capacity in the U.S. electricity sector experienced unprecedented growth from 2001-2003, with 95% of this growth from combined cycle or gas turbine (CCGT) plants running on natural gas. However, utilization of this capacity remains modest: in 2012 the output of these plants was only 28% of its potential maximum. The Environmental Protection Agency’s (EPA) proposed Clean Power Plan develops state-level carbon emissions targets based in part on expectations that states will be able to raise utilization of natural gas capacity, which produces lower carbon emissions than other fossil fuels, to 70%. Today’s excess CCGT capacity is likely reserved to run during peak electricity demand. To understand the feasibility and costs of shifting natural gas capacity from peaking to baseload operations, we need to understand the barriers preventing this from already taking place.

The purpose of this study is to evaluate the factors that have historically led to low utilization of natural gas capacity, and to provide policymakers with recommendations for crafting least-cost state policies for natural gas utilization in order to reach the state carbon emissions targets in the Clean Power Plan. I use Energy Information Administration and EPA eGRID panel data on U.S. power plants to evaluate the role of different policies, energy demand, and fuel supply factors on natural gas utilization using econometric modeling. Utilization of other sources of electricity generation, such as coal and intermittent renewables, may compete with or complement natural gas generation and will also be tested using sets of equations in a seemingly unrelated regression. Preliminary results show new CCGT plants have higher utilization rates than older plants, and all natural gas plants have higher utilization as natural gas prices decrease. These results suggest technology plays an important role in increasing utilization of natural gas capacity, and efforts to keep natural gas prices low by increasing pipeline capacity may help state efforts to displace coal generation with existing natural gas capacity.