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 is the primary use of the fuel price forecast for the Council's 5th 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 did not directly drive the demand forecasts of this power plan.
The fuel price forecasts do affect the expected absolute and relative cost of alternative sources of electricity generation. Through their effects on generation costs, they also largely determine the future expected prices of electricity.
This paper describes fuel price assumptions for the Northwest Power Planning Council's Draft 5th 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.