Demand for natural gas will increase in light of rising concerns about greenhouse gases.
Los Angeles, CA (PRWEB) October 31, 2013
The Coal and Natural Gas Power industry has wavered over the past five years. Revenue is expected to fall at an average annual rate of 0.7% to $102.1 billion over the period. According to IBISWorld Industry Analyst David Yang, "While the economy has recovered from the recession, electricity consumption has remained stagnant due to depressed industrial production." Additionally, a temporary slowdown in electricity infrastructure investments and a decline in fossil fuel prices have resulted in low electricity rates, which further cut into industry revenue. Nevertheless, in 2013, industry revenue is expected to increase 0.5% as economic growth picks up. Additionally, industry operators have experienced improved profit margins over the past five years due to low natural gas and coal prices over the period.
While coal-based generation is still dominant, firms have increasingly been focusing on natural gas-based generation over the past five years. Natural gas prices are already traditionally low, but reserves in the Appalachian Basin have also helped keep them down, hastening the industry's shift toward this power source. Investment in natural-gas plants has grown as well. These plants require lower initial fixed costs than other plants and can be expanded in a more cost-efficient manner. Profit margins have also increased over the past five years due to low natural gas prices. Furthermore, expected regulations on carbon emissions have increased the incentive to switch to natural gas, as it emits about half as much carbon dioxide as coal-based generation.
Over the next five years, stronger economic growth will stimulate greater demand for electricity. At the same time, higher fuel prices (coal and natural gas) will underpin electricity price increases as these extra costs are passed on to customers. "As a result, industry profit margins are projected to grow slowly in the five years to 2018," says Yang. Meanwhile, concerns about greenhouse gases will continue to cause industry firms to opt for natural gas over coal. While external competition from renewable energy-based generation is expected to increase, renewable energy will likely remain only a small portion of the energy consumed in the United States over the next five years. Additionally, investment in renewable energy largely depends on government funding and incentives; high federal deficits will limit renewable energy growth. Consequently, revenue is anticipated to grow over the five years to 2018.
The Coal and Natural Gas Power industry has a low level of concentration. The major companies in this industry are Duke Energy Corporation, American Electric Power Company Inc. and The Southern Company. Antitrust regulations and regional government energy policy are several factors that keep market share concentration low. However, concentration has increased over the past five years due to increased acquisition activity and heightened investment in natural gas generation facilities. The merger between major player Duke Energy and Progress Energy, another major regional utility, is indicative of this trend. Firms have been consolidating to bolster operating efficiency and better navigate heightened government regulations regarding energy efficiency.
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IBISWorld industry Report Key Topics
The Coal and Natural Gas Power industry operates fossil fuel-powered electricity generating plants. The steam generated by burning coal and gas is used to power turbines that generate electricity. Industry operators sell generated power to regulated transmission and distribution utilities and on wholesale electricity markets.
Key External Drivers
Industry Life Cycle
Products & Markets
Products & Services
Globalization & Trade
Market Share Concentration
Key Success Factors
Cost Structure Benchmarks
Barriers to Entry
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