Director of Energy Resources Strategy
16:30 - 17:00
Tuesday, 17 September 2019
T3.2 Changing position of LNG-fueled Power Plants in Japan
I would like to illustrate current position of LNG-fueled electricity generation briefly in comparison of generation costs with coal-fired plants and in the context of large penetration of varable renewables to help better understandings of LNG demand for electricity sector in Japan. This topic is related to LNG to power and might be categorized in New Energy landscape in Downstream or Contracting.
We have been experiencing significant structural changes of electricity generation sector after the earthquake and the nuclear accident in 2011. Electricity demand has not been increased much for last several years and rapid expansion of renewables: solar PVs, have been pushing both LNG and coal fired fleet to middle or peak load position with less dispatched hours as we have seen in other countries.
This means that LNG-fueled plants set electricity prices more often than ever, LNG prices have affected economics of both new and existing power plants of all kinds.
The most fundamental factor to determine the position of LNG-fired plants is cost competitiveness to other fuels. Coal-fired plants have been always competitive to LNG in terms of fuel cost, since imported coal prices have been lower enough than LNG even though thermal efficiency of GTCC is much higher than most advanced USC coal-fired power plants.
Cost difference of roughly $40 to 60/MWh between LNG and coal-fired generation in fuel cost has been observed from 2011 to 2014. Even after a sharp decline of oil and LNG prices in late 2014, current difference of fuel cost narrowed to around $20/MWh although coal prices have been stable at historically higher level. This is how LNG-fueled plants are more affected by nuclear restarts and renewable expansion although coal is more carbon intensive than LNG.
We might think about netback pricing of LNG from competitive cost to coal-fired generation in this context. The gap between fuel cost of LNG and coal might be filled with a certain level of carbon price if the government adopt this policy.
Another important factor these days to determine the position of LNG-fired plants is large and rapid expansion of VREs such as solar PVs and wind power plants.
It is always said that gas/LNG is the best partner of renewables since it provides flexible operation required to large penetration of VREs. It is true especially in western part of Japan, where large penetration of PVs requires flexibility of LNG-fueled GTCC plants even though their fuel cost is higher than coal.
However flexible advantage of LNG-fueled plants provides its new position at generation sector, it means less predictable of generation hours therefore fuel usage. LNG itself is not necessarily important, but capacity of LNG-fueled plants with flexible operation is critical.
Obviously, it is well understood that gas/LNG is cleaner than coal in terms of CO2 and other pollutant, flexibility of LNG-fueled plants will be critical to accommodate more VREs. However, position of LNG-fueled plants in electricity generation sector must be carefully watched not to be overestimated even in a carbon constrained world.