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What Would a Joe Biden Fracking Ban Look Like? Part Six: Impossibly Expensive Electricity

During the Democrat debate between Vermont Senator Bernie Sanders and former Vice-President Joe Biden on Sunday, March 15, 2020, Vice-President Biden stated that he would allow “no new fracking.”

However, banning fracking would cause the cost of generating electricity with natural gas to skyrocket by tripling the cost. As a result, places like Minnesota would either see utilities switch back to coal-fired power plants, or if Xcel Energy gets to fully implement it’s plan to shut down coal-fired power plants before the end of their useful lifetime and replace them wind, solar, and natural gas, Minnesota families will be shocked at the size of their electricity bills in the future..

This article is the sixth installment in this series.

Impossibly Expensive Natural Gas-Fired Electricity

According to the U.S. Chamber of Commerce study, “What if Hydraulic Fracturing Was Banned?” a fracking ban would cause natural gas prices to increase from $1.80 per thousand cubic feet (MCF) today, to $12 per MCF. This price increase would have major implications for the cost of generating electricity with natural gas in the United States as a whole, and in the state of Minnesota.

The graph below uses data from the Federal Energy Regulatory Commission (FERC), and it shows the cost of electricity generated at various power plants in Minnesota in 2018.  As you can see, the lowest cost sources of electricity in Minnesota were the coal-fired Boswell plants, the coal-fired Sherco plant, the High Bridge natural gas combined-cycle plant, and the Prairie Island nuclear plant.

However the High Bridge gas plant is only competitive with other power plants if the cost of natural gas remains low, but a fracking ban would cause natural gas prices to rise, making electricity generated using gas some some of the most expensive power in the state.

The graph below uses data from the Energy Information Administration and shows the difference in cost between the Henry Hub price of natural gas, and the cost of natural gas delivered to Minnesota power plants. It also shows an estimated  cost of natural gas delivered to Minnesota power plants if a fracking ban were to be enforced based on the historical price difference between Henry Hub and the delivered cost of gas.

The cost of natural gas at power plants would increase from $3.65 per thousand cubic feet (MCF) in 2018, to $13.97 per MCF in a hypothetical 2021. Based on these assumptions, we can estimate the cost of electricity generated with new natural gas plants in the state of Minnesota. First, it is important to understand that there are two main types of natural gas power plants: combined cycle (CC) plants, and combustion turbine (CT) plants, and they have different levels of fuel efficiency.

CC Plants

CC plants are very efficient machines, and they are often used to produce baseload power. The short, 1-minute video below explains how CC plants are able generate more electricity, while using the same amount of fuel, as other power plants, which makes CC gas plants the lowest-cost natural gas plants to operate.

CT Plants

CT plants plants operate in a similar manner as CC plants, but do not have the extra steam-powered generator shown in the video. Because of this, they generate less electricity while burning the same amount of fuel, making it more expensive to use these power plants than coal, nuclear, or CC natural gas plants.

One advantage of CT plants is that they can be quickly turned on or off, which is why they are often used as “peaker plants,” used to generate electricity during times when the wind isn’t blowing or the sun isn’t shining, or when coal, nuclear, or CC gas plants cannot meet the current demand on the grid. As a result, these plants are infrequently used, with utilization rates of just 7.6 percent in 2018 in the state of Minnesota, according to EIA data.

Fuel Costs at Each Plant

Because CC plants are more fuel efficient, they are able to generate electricity at a competitive price with coal. Using the numbers from our graph below, we can see what the cost of electricity would be for each technology by looking at levelized cost of energy (LCOE) estimates for higher fuel costs.

The cost of generating electricity at a new combined cycle gas plant, like the 800 megawatt (MW) facility Xcel Energy wants to build at the current site of the Sherburne County coal plant, would increase from about $35.42 per megawatt hour (MWh), to $101.42, if a fracking ban were to take place. These calculations assume a capacity factor of 75 percent. This is means the cost of electricity at the Sherco CC plant under a fracking ban would be three times higher than the cost of generating at the existing coal-fired facility.

A fracking ban would also make it more expensive to build a grid suited to accommodate the fluctuations in electricity generation from weather-dependent resources like wind and solar. Because CT plants are about 30 to 40 percent less fuel efficient than CC plants, the cost of electricity would increase from these facilities even more if fracking were banned. The graph below shows electricity generated from a CT plant would cost $47.99 per MWh if natural gas prices remained at $3.65 per MCF, but would increase to $150.21 per MWh under a fracking ban, assuming a capacity factor of 75 percent on these plants, as well.

This means that a system built to accommodate wind and solar power would cost much more than if we just continued to use our existing coal plants through the end of their useful lifetimes. If fracking were banned, it appears it would be far too expensive to build any natural gas power plants, and many companies would probably be giving nuclear power serious consideration as eventual replacements to their legacy coal fleets.

Conclusion

A fracking ban would make generating electricity with natural gas impossibly expensive. The end result would likely be an increase in coal-fired power generation, but this won’t be able to happen if utility companies like Xcel Energy are permitted to shut these facilities down before the end of their useful lifetimes.

This leaves two likely scenarios for Minnesota’s energy future: rising carbon dioxide emissions, or much higher electricity costs for Minnesota families and businesses. Both of these aspects will be examined in future installments of this series.

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