Utilities Are Betting Billions on a Technology That Could Become Obsolete
Utilities Are Betting Billions on a Technology That Could Become Obsolete
Publish Date: 2026-05-19 15:00:00
Source Domain: oilprice.com
If we think of electricity purely as a commodity, then we should apply to it the one financial rule that dominates all commodity markets everywhere: the lowest cost producer always wins. The logic behind this is simple. Why would anyone pay more for an identical product, scarcity concerns notwithstanding? If a pound (or kilo) of say sugar was $5 at store A and $10 at store B, it’s no mystery whose inventory will sell out first. The same logic applies to the production of electricity. And, to us, that’s why industry leaders have been so focused on a transition to gas from coal as a boiler fuel. And we’ll get into where renewables fit here in a moment but let’s explore the logic behind the utility industry’s coal to gas transition for a moment.
(Every time we write stuff like this, we receive a flurry of correspondence from well-meaning individuals suggesting that we are complete morons who know nothing about the adverse environmental consequences of CO2 accumulation in the atmosphere. All we say is please bear with us here because we believe a brief review of recent history may help illuminate our present moment and its technological changes.)
Let’s begin with a simple question. Are there any obvious advantages for an electric utility to use gas instead of coal in its boilers? In answer, there are at least four major cost and efficiency advantages of gas vs coal:
- The biggest one is the heat rate of a gas vs a coal boiler. Heat rate tells us how much thermal energy (in the fuel) is required to produce a KWH. A coal boiler requires about 10,000 BTUs/KWH vs a combined cycle gas boiler, which requires about 7500 BTUs /KWH. In competitive terms, an advantage like this is insurmountable.
- Shipping costs are another advantage of gas vs coal. Moving gas via pipelines is much cheaper than moving coal via rail. In some cases rail costs make up to half the price of a delivered ton of coal.
- Disposal of long term waste adds to coal’s disadvantage. Unlike…
