The IPCC’s urgent call for the world’s power utilities to reduce coal consumption 60% by 2030 might look unrealistic through a business-as-usual lens. But it isn’t far off a mounting trend that has only begun to reflect the falling cost and heightened viability of renewable energy, writes Bloomberg News analyst David Fickling.
And in the two weeks since Fickling’s post appeared October 9, several countries have taken steps that reinforce his analysis.
Reacting in the 24 hours after the IPCC released its landmark report, Fickling acknowledges that the UN agency’s target for scaling back coal “seems wildly ambitious: Even Bloomberg New Energy Finance, which tends to be more optimistic than other analysts (and more accurate) about the speed of the energy transition, expects coal-fired generation to increase by 10% over the period.”
But coal-fired electricity production fell by one-third between 2010 and 2017, he notes, while black coal generation in the EU dropped by about the same margin in just four years, between 2012 and 2016. “Across Europe and the U.S., the decline in coal output recently has averaged close to 5% a year,” he writes. “If the world as a whole can reach 7% a year, it will be on track to meet the IPCC’s 2030 target.”
Conventional wisdom points to rising electricity demand in China and India and declares a rapid coal phase-down impossible. But “that may underestimate the changing economics of energy generation,” Fickling writes. “For one thing, it assumes that Asian countries will continue to build new coal-fired plants at a rapid rate, even though renewables are already the cheaper option in India and heading that way in China and Southeast Asia. For another, the falling cost and rising penetration of wind and solar is so recent that we’re only just starting to see how they damage the business models of conventional generators.”
That refers to the impact of cheap renewables on utilities’ pre-existing electricity production: when wholesale power costs fall, sometimes below zero, conventional coal and gas plants take in less revenue per megawatt-hour. When that revenue “drops below the generator’s operating costs, the only away to avoid losing money is to switch off altogether,” Fickling explains. “As a result, capacity factors—the share of time when the plant is on and producing electricity—decline as well, further undermining returns.”
That financial dynamic puts “base load” coal and gas plants into an unforeseen situation where they have to ramp up and down more often than they should, a source of wear and tear that might take up to a decade off their operating life unless a utility invests in expensive refurbishments. As that dynamic unfolds, particularly if renewables energy and battery storage costs keep plunging, “banks will get progressively less likely to fund long-term refurbs as wind and solar further damage the economics of fossil power.”
The emerging shift prompted researchers at Australian National University to predict a 70% drop in coal-fired generation—even more than the IPCC envisioned—between 2020 and 2030, Fickling reports.
“It’s not hard to produce comparable results for China’s more modern coal fleet, whose fate will be the decisive influence over electricity-related emissions in the coming decades,” he writes. “Let’s assume the addition of net new generation stops in 2020; that plant life reduces to 30 years from 40 years; and that capacity factors gradually fall from the current 50% to 35%, still well above the levels of the UK’s coal generators in recent years. The effect of those operating changes alone reduces coal-fired electricity output in 2030 by about 40% relative to the higher scenario.”
While “that’s not enough,” he adds, “it’s also not an outrageously challenging scenario. Factor in a price on carbon (the European Union’s emissions certificates are one of the best-performing commodities this year) or other robust government intervention, and the decline would be much faster.”
As if to put an accent on Fickling’s analysis, the last two weeks of news have not been friendly to a collapsing global coal industry. Since October 9:
- A German court decision temporarily protected remnants of the 12,000-year-old Hambach Forest from open-cast coal mining.
- U.S. coal giant Westmoreland filed for bankruptcy and Mission Coal laid off 400 workers in West Virginia, while White House advisors turned against Donald Trump’s desperate attempt to bail out the country’s ailing coal and nuclear industries.
- The World Bank turned down financing support for a new 500-megawatt coal plant in Kosovo.
- Higher carbon prices appeared to be setting the stage for an off-coal transition in Poland.
- Taiwan cancelled a planned coal plant expansion (though the project will be replaced by the country’s third liquefied natural gas project).
- India pulled the plug on the massive, new 2,400-MW Gajamara coal project in the Dhenkanal district of Odisha, while a Harvard University team concluded the country could save an astounding 11 million “life-years” per year by replacing polluting coal plants with renewables.
- South Korea’s Chungnam province announced a coal phaseout, in what Canada’s Pembina Institute headlined as a “sign of the times”.
• ClientEarth challenged the permits for two new coal plants in Greece, along with the Greek branches of Greenpeace and World Wildlife Fund, arguing that the permits violated national and European Union laws.