No denying coal's developed world decline

Last week in a column outlining how Australia might be dragged along by international actions to reduce carbon emissions, I suggested that coal was facing some significant headwinds in Europe, the US and possibly China.  To which a reader commented that I was wrong because Europe’s coal consumption rose 4% last year, and according to him 25 coal power stations were under construction in Germany. 

This suggests it would be worthwhile looking deeper into the headwinds confronting coal.

EUROPE

First a look at historical coal consumption for the EU since 1990. The overall trend is clearly down. Yes there was an uptick in the last two years representing a bit of a recovery from the GFC collapse but consumption is still below 2007 levels.

European Union (27 member states) coal consumption since 1990

 And looking forward the prognosis is not good. While low carbon prices and low cost US coal exports (driven by shale gas pushing it out of the US market) have helped, new air pollution requirements to apply from 2016 should counter any ongoing revival. According to analysis from Bloomberg New Energy Finance only 40% of coal fired capacity will be able to comply as illustrated below. 

Assessment of EU coal plants’ compliance with 2016 air quality requirements

Source: Bloomberg New Energy Finance, cited by the Sierra Club

For the remaining non-compliant power plants, operators face large costs to upgrade their plant to standards. Given the troubled outlook for coal longer term, many will opt to shut down instead.

On this idea of Germany apparently building a whole lot of new coal power plants, it is a complete myth – this is a case of mixing up an announcement with the actual pouring of concrete.  If you read a number of news articles Climate Spectator has been publishing over the last few months you’ll find German utilities are struggling due to depressed wholesale power prices.  The large amounts of renewable generation flooding the market has acted to push out high marginal cost generators, depressing prices and making new build coal or gas completely unviable.  

UNITED STATES

In terms of the US, there has also been a recent small uptick in coal consumption. But when you look over a longer time period the picture is bleak.

Why?

According to the International Energy Agency,

“around one-third of the 340 GW of coal-fired capacity is more than 30 years old and relatively inefficient, and coal-fired generation faces more stringent pollution standards, for example on mercury, which may well lead to accelerated retirements of older plants. There has been hardly any net increase in coal-fired capacity since 2000.”

Since 2009 US power companies have announced plans to shut more than 40 GW of coal plant (more than Australia's entire coal power capacity) because it’s just not worth the cost of major upgrades to get these plants up to standard to meet new air quality pollution requirements.  Today we’re carrying a Reuters news story about how the largest owner of US coal power plant capacity, AEP, is shifting away from coal due to low gas prices and the multi-billion dollar cost of upgrading coal plant to meet environmental requirements.

According to AEP’s CEO Nick Atkins, "Historically, our culture was if a coal unit went down we did everything possible and spent everything possible to keep it running. Today's analysis is very different".

Pulling this all together, data from the US Energy Information Administration shows below how coal’s share of the electricity market has declined. In their most recent projections they expect coal output in 2016 to be lower in absolute terms than it was in 1990. This is in spite of the EIA expecting that US gas prices will increase substantially in the near term. While there is a slight revival in coal after 2016, that’s where President’s Obama’s State of the Union vow to act on carbon emissions comes in.  The EPA is looking to regulate CO2 emissions from existing coal plant which should prevent any post 2016 revival.

Coal is a long way from being completely phased out in Europe and the US, but it is in serious long term decline.

Coal’s saviour is China and India.  If China halts coal consumption growth consistent with its State Council plan, then coal exporters are in serious trouble.