*This is the executive summary of the Carbon Tracker Initiative's just-released report 'Energy Access: why coal is not the way out of energy poverty'.
Energy poverty is a critical issue
Of the world's 7 billion people, more than 1.2 billion (250-300 million households) currently lack access to electricity; hundreds of millions more contend with power supplies that are low-quality or very unreliable. Such electricity deficits impede both human development and broader economic growth. Recognising this, governments, companies, and civil society have in recent years launched major initiatives to tackle "energy poverty," with the United Nations declaring 2014-2024 the decade of "sustainable energy for all."
Coal as the solution for energy access?
One constituency that has taken a particular interest in the energy poverty issue is the coal industry. Citing the increase in coal consumption that has accompanied urbanisation and industrialisation in multiple countries, industry advocates champion coal as the "only affordable fuel, at scale, to meet rising energy demands" and "essential to meet the scale of Africa's desperate need for electricity." Yet only 7% of those without access to energy in Sub-Saharan Africa live in the handful of countries with producing coal assets.
Realities of energy access: rural areas and grid extension costs limit contribution from coal
In certain urban regions, the low-cost option to provide electricity access may involve coal-fired electricity delivered via a centralised grid. Globally, however, coal's contribution to extending energy access is constrained by the reality that:
1) 84% of individuals without electricity live in rural areas;
2) such areas often lack connections to a centralised electricity grid; and
3) the costs of grid extension plus grid-based electricity often exceed the costs of off-grid solutions such as diesel generators or small-scale wind, hydro, and solar PV.
For the early stages of energy access (e.g. task lighting through to low-power appliances), technologies such as solar lanterns and mobile phone chargers can provide energy services for 4-20% of the cost of a grid connection.
Progress on energy access offers limited upside to coal
The coal industry regularly cites the IEA New Policies Scenario as driving huge growth in demand, and solving energy access problems. However this scenario only sees an 18% global increase in coal demand, and leaves nearly three-quarters of the energy poor still without access to energy. More relevant is the IEA’s Energy for All scenario which does aim to provide universal access to energy by 2030.
Relative to a base case where in 2030 969 million people still remain without access to electricity, the International Energy Agency (IEA) projects that achieving universal electricity will increase 2030 electricity demand by roughly 1400 terawatt-hours (TWh), or by 4.1% above the base case level. Owing partly to the grid extension costs noted above, only 35% of this additional 1400 TWh (i.e. 488 TWh) will come from fossil fuels, with the remainder coming from renewable generation sources such as hydro, wind, and solar.
Pro-rating this incremental fossil fuel demand to coal, 215 TWh is equal to only 1.8% of global electricity generation from coal in 2011. This amount of extra generation could be offset by India and Sub-Saharan Africa reducing distribution losses by one third. We also expect further improvements in energy efficiency to erode demand for coal. At least through 2030, it is therefore inappropriate to suggest that achieving universal electricity access will require a substantial increase in demand for coal-fired electricity.
Even with sufficient grid infrastructure, economic advantages of coal are dissipating...
A more realistic source of growth in future coal demand results from the economic imperative for countries in Asia and sub-Saharan Africa to provide cities and businesses with reliable and affordable power. Even within this grid-connected market, however, there are barriers to coal serving as the "base fuel for power and steel to urbanise a world of over 9 billion people by 2050."
The cost of electricity from major new coal-fired projects in developing countries is often turning out to be much higher than expected. As a result of delays and cost overruns during construction, electricity from South African utility Eskom's massive new 4.8 GW Medupi plant is estimated to cost ~$90/MWh. By way of comparison, in May 2013 Eskom contracted for 787 MW of wind power at an average cost of $75/MWh and 435 MW of solar PV at an average cost of $100/MWh. In India, comparing the costs for generating electricity from imported coal versus the cost of power from recent wind and solar PV projects tells a similar story. Though there is limited usefulness in such comparisons (as they exclude, for example, systems costs associated with variable wind and solar output), they do reveal how the rapid declines in the cost of renewable generating technologies is eroding the economic rationale for developing countries to invest in new coal-fired plants.
... while environmental impacts and financing challenges remain
Even where coal appears to offer the lowest-cost electricity, the attendant environmental impacts of coal-fired generation cannot be ignored.In addition to carbon-dioxide emissions, burning coal emits particulate matter emissions that are linked to increased prevalence of asthma and bronchitis, as well as an increase in the death rate from cardiovascular disease and respiratory ailments. A recent air-sampling study, found PM2.54 levels in New Delhi to be twice as high as those in Beijing (and trending upward);5 note that this is in a country hat already has the world's highest death rate from chronic respiratory diseases and more deaths from asthma than any other nation. More generally, a more recent analysis by Yale University researchers identified seven of the 10 countries with the worst air pollution exposures in the world to be in South Asia.
Though use of more advanced coal generation technologies can mitigate such air pollutants, they exacerbate a second challenge related to coal-fired generation in developing countries: financing. With the cost of a 1 GW subcritical (i.e. least-advanced) coal-fired power plant already exceeding $1 billion, most developing nations are unable to afford such large investments. Even where the cost of electricity appears higher on a per-kWh basis, the smaller, modular nature of distributed renewable generation technologies if often a better financial fit for developing countries than are coal-fired plants.
Developing nations, including India and many in Africa, investing heavily in renewables
Developing countries are investing heavily in renewable electricity. A recent survey of 55 emerging economies found that from 2007-2013 annual renewable investment in these countries more than doubled from $59.3 billion to $122 billion; as a result, over this period these countries installed a combined 142 GW of renewable generating capacity.
We note in particular recent advances in India and sub-Saharan Africa. Since 2006 India has added 25 GW of wind, solar, and bioenergy, with a goal of 72 GW by 2022.9 Momentum for renewable generation on the subcontinent is such that Coal India (one of the world's largest coal mining companies) is evaluating the possibility to invest $1.2 billion in the development of 1000 MW of solar power plants.
Meanwhile, led by countries such as South Africa, Kenya, Ethiopia, and Uganda, sub-Saharan Africa has seen a surge of investment into wind, solar, hydropower, and geothermal projects. Since 2010 cumulative installed solar capacity has increased from 40 MW to 280 MW, with 150 MW of grid-connected projects now under construction in South Africa and Ghana, with proposals for ~100 MW projects in Ethiopia, Nigeria, Sudan, and Mozambique.
Business model innovations accelerating clean energy deployment in developing countries
For all of the focus on declining technology costs, we highlight how innovations in manufacturing, financing, and operations are accelerating adoption of renewable technologies in developing countries. Pay-as-you-go financing models are reducing the upfront cost of solar for both isolated, off-grid villages and grid-connected commercial enterprises.
Development of local solar manufacturing capacity is overcoming the obstacle of import tariffs and increasing local job-creation from clean energy. And entrepreneurs are leveraging the spare power capacity of 600,000 off-grid cell phone towers to distribute electricity to areas not yet connected to a centralised grid. Combined with lower technology costs, such innovations are making renewable electricity sources increasingly competitive with centralised, fossil-fuelled generation and we expect this trend to continue.
Recent deployments highlight potential renewable future for India and Africa
Rising deployment of renewable electricity sources in recent years increases the relevance of scenarios in which India and Africa move toward futures dominated by renewable, low-carbon electricity. In the IEA’s 2°C high-Renewables Scenario (hi-Ren Scenario), for example, by 2050 both of these regions generate more than 80% of their electricity from low-carbon renewable sources11 (versus roughly 17% in 2011) and less than 5% from coal (versus, in 2011, 68% for India and 38% for Africa). Whereas in 2011 solar power accounted for less than 1% of total electricity generation in both India and Africa, in the IEA’s hi-Ren Scenario by 2050 these shares rise to roughly 40%.
Renewable future requires upfront investment, but over the long term higher costs are offset by fuel savings
Such a sustained scaling up of renewable generation will require substantial investment in order to occur. Relative to extending current power-sector investment trends through 2050, a hi-Ren scenario will require average annual investment to increase by $45 billion (i.e. 71%) in India and by $20 billion (i.e. 50%) in Africa. Accounting for trillions in cumulative fuel savings as a result of burning less coal/oil/gas, however, over the long such investments are likely to increase total costs for power generation in these regions by at most 1%. Given our view of improving economics for renewables we can see this becoming a net positive. And there should be an increasing move to local manufacturing. Compared with 2013 annual per-capita GDP levels, required average annual additional investments for a hi-Ren Scenario amount to 2.5% of per-capita GDP in India and 0.1-6.0% of per-capita GDP levels in Africa. For comparison, as a result of limited access to modern energy sources, households in these countries currently spend anywhere from 6-14% of household income on energy. That said, this additional required investment highlights the importance of initiatives to accelerate flows of clean energy finance into developing countries, such as the commitment of $100 billion by 2020 that developed countries made as part of the 2010 Cancun Agreements.
Unreliable and costly power supplies have led Indian and African business to invest heavily in on-site generation...
Power outages cause businesses to lose, on average, 7% of their working hours in South Asia and 13% in Africa; annual economic losses as a result of these disruptions average $12000 per firm in South Asia and $9000 per firm in Africa. In Africa, even when grid-based electricity is available, commercial and industrial businesses pay among the highest electricity tariffs in the world. In response to unreliable and costly power supplies, businesses in these regions have invested heavily in on-site generation, typically in the form of diesel generators with capacities ranging from 1-5 MW (for small and medium-sized firms) and up to several hundred MW for large firms. On-site diesel generators, however, carry a high cost, with the levelised cost of electricity (LCOE) from such systems often exceeding $300/MWh and (in areas with particular high diesel costs) at times reaching $500/MWh or more.
... creating a tremendous economic opportunity for distributed clean generation – in particular hybrid PV/diesel systems with batteries
This creates a tremendous economic opportunity for distributed renewable generation technologies such as solar PV. In East Africa, for example, we estimate that the simple payback for investment in distributed solar PV systems can be as low as 6 years (against grid-based electricity) or as low as 4 years (against diesel). Distributed PV will often be deployed as part of hybrid PV/diesel system, with PV output being used to meet midday loads and diesel generation (or stored solar electricity) being used to cover early morning or nighttime loads.
Declining battery costs will enable hybrid systems to use more solar and less diesel
Including battery storage in hybrid PV/diesel systems enables a greater portion of load to be met through solar power, reducing reliance on costly diesel generation. Current battery prices, however, often constrain the amount of storage capacity that it is economical for hybrid diesel/PV systems to employ. For example, in the case of a 300 kW system, each MWh charged via battery typically adds $200/MWh or more in cost – making battery costs 30% or more of the LCOE of such a system. As a result, assuming a diesel price of $1/liter, the LCOE of PV/diesel-battery hybrid systems ranges from roughly $270/MWh (for a 1 MW system) to over $450/MWh (for a 300 kW system).
Though generally still less expensive than diesel generation, the difference has heretofore been too small to motivate widespread adoption. Projected declines in battery costs, however, are set to make the economics of PV/diesel-battery hybrid systems more attractive. For example, the Tesla Motors "Gigafactory" is currently sourcing lithium-ion batteries from Panasonic at a price ($168/MWh) that is 40% less than the per-MWh price of batteries in most hybrid storage systems; moreover, based on material costs, the long-term competitive price for lithium-ion batteries may be as low as $100/MWh. Other battery chemistries have similarly attractive long-term economics.
Battery costs at $100/MWh could reduce the LCOE of a 300 kW hybrid system by 20% or more – resulting in greater savings relative to diesel generation, faster paybacks of up-front investment, and broader adoption.