Fuel Price Forecasts for the Fifth Power Plan
Council document 2002-15 |
September 10, 2002
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Introduction
Fuel prices affect electricity planning in two primary ways. They
influence electricity demand because they are substitute sources of energy
for space and water heating and some other end-uses as well. They also
influence electricity supply and price because they are potential fuels
for electricity generation. Natural gas, in particular, has become the
most cost-effective generation fuel when used to fire efficient
combined-cycle combustion turbines. This second effect will be the primary
use of the fuel price forecast for the Council's fifth power plan.
Traditionally, the Council has developed very detailed forecasts of
electricity demand using models that are driven by economic, fuel price,
and technological assumptions. For a number of reasons, the Council has
chosen to retain many elements of its long-term demand forecasts from the
4th power plan, making modifications as needed to reflect significant
changes that might affect the long-term trend of electricity use.
Therefore the fuel price assumptions will not directly drive the demand
forecasts of this power plan.
The fuel price forecasts will affect the expected absolute and relative
cost of alternative sources of electricity generation. Through their
effects on generation costs, they will also largely determine the future
expected prices of electricity.
This paper describes draft fuel price assumptions for the Council's
fifth power plan. Three major sources of fossil fuels are addressed;
natural gas, oil, and coal. For each, the paper provides some background
on historical consumption patterns and prices. This is followed by a
description of the methods used to forecast fuel prices and the resulting
forecasts. Appendices provide more detail on the methods and forecasts.
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