The division also suggested West Virginia should market itself to industry as a place with "affordable, reliable" electricity, and continue development of coal liquification plants.
While coal production is slipping, natural gas production has skyrocketed over the last decade. Production increased about 30 percent between 2010 to 2011 alone, going from 297 million cubic feet to more than 400 million.
The state also is seeing a boom in natural gas processing facilities, with 13 plants being built or expanded between now and June 2014
Herholdt told lawmakers there currently is no compelling financial reason for power plants to convert to natural gas, however.
Coal prices are hovering around $3.50 per million British thermal units, while natural gas is expected to top $4 per BTU next year. He said plants would not convert to natural gas unless forced to by government regulations.
The Division of Energy suggested lawmakers help the natural gas boom along by promoting use of natural gas-powered vehicles by local governments and businesses in the state.
Wind, solar and hydroelectric energy production remains a relatively small part of the state's energy plan.
According to the report, West Virginia had the potential to generate 1 megawatt of solar energy in 2011.
The state's wind farms had significantly higher potential, at 583 megawatts. The largest contributor was the NedPower Mount Storm wind farm in Grant County, which has an energy capacity of 264 megawatts.
Hydroelectric plants had a generating capacity of 462 megawatts in 2011. There are 15 dams producing electricity for West Virginia, but nearly a quarter of that power came from the Hawks Nest Dam, which has a generating capacity of 102 megawatts.
More hydroelectric facilities are in the works, however. According to the report, eight more dams have received preliminary permits, with the combined capacity to generate an additional 475 megawatts.
The Division of Energy recommended lawmakers explore the possibility of creating more wind farms on reclaimed surface mine lands.
The report also recommends a look at installing small-scale hydroelectric damns at recreational areas and creating tax incentives for individuals or businesses that install hydroelectric generators on their properties.
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