How Quickly Is the Sun Setting on the Age of Coal Power?

by Bob Shively, Enerdynamics President and Lead Facilitator

Throughout the lifetimes of those in the energy industry, coal power has represented a growing source of electricity around the world. But suddenly, this is no longer true. In the United States, coal generation peaked in 2007 and has fallen by 43% since. Worldwide, coal generation continued to grow until now when it appears poised to fall by 3% in 2019 compared to 2018. 

Source: U.S. Energy Information Administration (EIA)

Source: CarbonBrief

While trends in the United States are clear, what about throughout the world? Will 2019 be an aberration, much like the drop off in 2009? Or is this the beginning of a worldwide decline?

Despite a common perception that coal is declining because of environmental regulation, the most significant contributor to the decline is economics. Coal units simply can no longer compete with lower-cost natural gas, wind, and solar resources. A look at the latest cost numbers is revealing. For new generation, coal has clearly become an expensive resource as demonstrated by the latest analysis by financial advisory and asset management firm Lazard:

Source: Lazard Levelized Cost of Energy Analysis – Version 12.0

It is important to note that these are unsubsidized numbers, meaning that any government support for any specific technology is not reflected.

Even more interesting is Lazard’s analysis related to competition between new renewables and costs of operating existing coal units:

Source: Lazard Levelized Cost of Energy Analysis – Version 12.0

We can see that even existing coal units will begin to feel pressure from newly built renewable generation. And this is before taking into account any government policies concerning environmental benefits. While some would rightfully argue that a baseload coal unit is a different resource than variable renewables, we are seeing more and more developments around flexible gas units, storage, and flexible loads, which begs the question: Do electric grids even need much in the way of traditional baseload generation?

It is clear that coal is declining quickly in the U.S., but what about the rest of the world?

• Europe: According to CarbonBrief, coal use in the European Union (EU) will decline this year by more than 20% compared to 2018. And while lack of sufficient gas capacity to further displace coal will slow the drop in the next few years, ongoing investments in wind and solar are expected to contribute to a continued decline in coal use. The transformation is perhaps best demonstrated by the United Kingdom. Its electric system, once highly dependent on coal, is now down to just six coal plants, and many of them are now fueled primarily by biomass rather than coal.

• Asia: Japan and South Korea are longtime users of significant amounts of coal generation, but in each country output from coal units has declined driven by flat demand growth and increases in nuclear and renewable generation. It appears this trend will continue. 
  
  But the key question for Asia comes down to the future of China and India. China has continued to build coal units in recent years, and a number of additional units are in the construction pipeline. If these come online and are fully utilized, China’s coal generation will continue to grow for a number years to come. Whether or not this occurs is uncertain, as cost data now indicates that renewable energy in China has reached cost parity with coal power. Given the attention the Chinese government has paid to environmental issues in recent years, the government may eventually require utilization of renewable energy over coal generation. 
  
  India reflects similar uncertainty.  A number of new coal units have been brought online this year, and numerous additional new units are planned. But demand has declined, meaning even existing coal units are not fully utilized. And India has plans for significant growth of renewables. It is likely that a number of planned coal units will be never be built. So while coal generation may increase in India, it does not appear it will grow as quickly as prior forecasts have suggested.

Which leaves us to ask: Will world coal generation continue growing for another decade before declining or have we already reached an inflection point? Critical decisions that will answer this question will be made in countries such as India and China. There are good arguments to be made for both viewpoints, so we will have to wait and see what developments show in the next few years. But there is significant reason to believe that coal generation has already begun an inevitable decline.

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