Within the past few years, there has been a flurry of natural gas-fired power plants sprouting up all over Ohio by non-utility companies. To date, there are 11 projects under construction, announced, approved or completed, with investors eyeing the potential for several more. Together, these 11 projects will add 11,217 megawatts (MW) of electricity, powering over 9.2 million homes while creating an estimated 6,365 new construction jobs. Obviously, this surge of private investment and economic activity is great news, but it does beg the question — why are these gas-fired power plants sprinting to Ohio? Here are three reasons why.
Reason #1: Electricity Production Is Needed
Ohio has lost 10,003 MW of electricity produced from coal-fired plants and retired 56 boilers over the past few years. This reality, coupled with the development of Marcellus and Utica shales, has created an environment where it is extremely attractive and cost competitive for private sector companies, like Independent Power Producers (IPPs) to build new natural gas-fired power plants.
Reason #2: Ohio Has An Open Free-Market System
The fact that Ohio is a deregulated state, meaning that Ohio competes for low-cost electricity generation with 13 other states, is another reason IPPs of natural gas-fired power plants plan to invest $9.5 billion in Ohio in order to provide electricity customers in Ohio the best prices made available through an open market system. Ohio “deregulated” and became part of this 13-state open market system, called PJM, in 1999, allowing customer choice in their electricity generation while saving consumers an estimated $3 billion per year, according to a recent report by the Ohio State University. A recent survey showed that Ohioans are pleased with the consumer savings as well, and favor customer choice by a margin of 5 to 1.
Today, Ohio generates electricity from coal (approximately 59 percent), natural gas (approximately 23 percent), nuclear and a mix of renewables (together approximately 18 percent) through this free-market based system, according to the U.S. Energy Information Administration (EIA). However, given all these gas-fired power plants coming to Ohio, this outlook of electricity generation by source will certainly be changing due to the fact that an environment has been created in the Appalachian region (Ohio, Pennsylvania, West Virginia) that has led to the lowest natural gas prices in the developed world.
Reason #3: Cheap, Local, and Abundant Baseload From Natural Gas
The core contributor to this natural gas-fired power trend is the fact that natural gas production in the Appalachian region has increased at a rapid pace in recent years due to hydraulic fracturing. The EIA’s 2015 Drilling Productivity Report shows that from January 2012 to July 2015, natural gas production in the Marcellus and Utica shale regions accounted for 85 percent of the increase in natural gas production in the U.S. And as the EIA’s recent Annual Energy Outlook and Drilling Productivity Reportshows, the agency expects the Marcellus and Utica to continue driving U.S. shale gas production growth going forward.
Considering this prolific production has reduced natural gas prices at a similar rate, it should come as no surprise that non-utility investors are racing to Ohio to build modern natural gas-fired power plants.
A 1,000MW gas-fired plant requires 145,000 million British Thermal Units (MMBtu) a day and 6.5 million MMBTu/year to operate. In Ohio, the 11 projects under construction, announced, approved or completed will require over 340 million MMBTu/year to operate. As EID recently reported, Ohio’s natural gas production jumped 852 percent from 2013 to 2015, and in the first three quarters of 2016, production has continued to soar higher. As a recent Forbes article rightly pointed out, “Utica And Marcellus Natural Gas Production Defying The Skeptics”. As the author of the article stated,
“And we know that increasing demand induces increasing supply, perhaps the most important fact regularly omitted by the anti-shale industry. In short, there will be plenty of opportunities to produce lots more natural gas because, as a nation, we will be using lots more gas.” (Emphasis Added)
In short, Ohio is in a uniquely positive situation to take advantage of a game-changing event, resulting from abundant, local and low-cost natural gas. At the end of the day, it’s important to remember that we currently have $9.5 billion in investment announced from Independent Power Producers and these new gas-fired power plants would not be possible without the prolific natural gas produced from the Utica Shale and fracking.
Not only are these plants providing a much-needed source of end use for Ohio’s natural gas producers, they are improving the environment as well. The EIA recently released a report highlighting the fact that sulfur dioxide (SO2) emissions produced from U.S. power plants have declined 73 percent from 2003 to 2015, thanks in large part to the increased use of natural gas for electricity generation. Indiana, Kentucky and Ohio were once states with the highest rates of SO2 emissions, but thanks to an increased usage of natural gas, each state still significantly reduced its emissions in 2015. Of course as these 11 natural gas power plants go online, we can expect the environment in Ohio to continue to improve as well, considering natural gas emits virtually no SO2. Increased natural gas use has also driven U.S. greenhouse gas emissions to 25-year lows. In fact, EIA has recently noted that the current shift of electrical generation fuels to natural gas has accounted for 68 percent of the 14 percent total reduction in U.S. energy-related CO2 emissions during the last decade.
How many more of these plants will be announced in the Buckeye State? Time will tell. With an open, free-market system where natural gas, coal and renewables are all competing for market share, and with the lowest natural gas priced in the developed world, it’s really not surprising that Independent Power Producers are calling the electricity generation market in Ohio “ground zero.”