Mother Nature’s Merit Order: Fuel Economics Trump Policy

This article first appeared on the BNEF mobile app and the Bloomberg Terminal.

  • Carbon emissions are a factor for every U.S. power generator
  • Coal-to-gas switch mitigates more CO2 than gas-to-renewables

U.S. power generators ranked by emissions factor (tCO2e/MWh)

Source: Bloomberg New Energy Finance

Economics, not policy, has been the most potent force in decarbonizing U.S. power generation. Power plants are dispatched in order of increasing short-run marginal cost. This upward-sloping supply curve (called a merit order) yields the cheapest energy, not necessarily the cleanest. The cleanest solution would arrange units based on emissions rate, as shown here. U.S. shale gas has re-arranged the U.S. grid to better align with Mother Nature’s merit order. Low prices have pushed combined cycle gas turbines in front of coal, saving 0.6 metric tons per megawatt-hour of carbon dioxide in the process. That savings is more than is mitigated by renewables in California, where solar displaces gas.

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