Coal isn't dying: why in the age of cheap renewables are we using more than ever before?
Many of us assume coal is on its natural way out because every day, a news story trumpets the success of renewables. Yet despite prior predictions that we’ve hit the peak, we have reached new heights of coal hunger in each of the past three years. Aside from the usual suspects like the US, China and India, most of us have no concept of coal’s long tail of consumption: 75 countries have coal power plants. We don’t talk enough about the forces at play keeping it alive.
Coal produced almost half of the carbon emissions from energy and industry since 1750. Yet although less harmful and often cheaper energy alternatives like gas and renewable power abound, we burn more coal in absolute terms than ever before. Two terawatts of coal power still supply 35% of our electricity. Last year, we built ~70 gigawatts more coal capacity, and retired just 21 GW, our lowest annual retirement since 2011. Even in countries that have practically eliminated coal like the UK, it is resurrected in glorified bonfires that emit just as much carbon, if not more.
At this rate, coal is going to be with us for decades to come, yet we need to reduce consumption to impossibly low levels to prevent catastrophic climate impacts (4% of electricity by 2030 and 0% by 2040 powered by coal). If we let coal use hide behind renewable optimism, it seems unlikely to go away in our lifetimes.
We already have the technology to switch off coal – solar, wind, hydro and batteries – and it is already cheaper to install it in many cases. Why, then, is China still building coal power, and facilities still coming online in nations as economically and geographically diverse as Japan, Greece and Zimbabwe?
Let’s start with economics, the main reason people think coal will phase itself out with little fuss. In the right conditions, renewable energy can deliver cheaper electricity on a per-unit basis than coal or gas. Yet per-unit energy costs are not the only important factor in the system. Our demand changes throughout the day, and with it, the supply of renewable energy. We also want reliable supply that is not at the whims of nature. For this, we need electricity that can dispatch at will, and storage technologies add cost. So, too, does transmission investment, to ensure renewables can get to where they are needed without cutting them off if they over-produce.
Financing costs are an important factor for renewable energy pricing given the significant capital investment. In countries with a higher cost of capital or low access to funds generally, it may be cheaper to build coal plants, or continue operating existing facilities, than to build renewable power with storage.
This is changing as costs decline, particularly as China subsidises renewable energy products. The next challenge is technical constraints.
The sheer amount of construction takes time. Onshore wind and solar projects take 1-2 years from concept to construction, and a further 1-2 years to build. Offshore wind can take 5-10 years. There are 2 terawatts of coal to retire, plus new electricity required for growing economies and shifting energy use patterns. We are installing renewables at a pace of ~500-600 gigawatts per year yet this has not led to a commensurate retirement of coal (470 gigawatts of retirements from 2000 to 2023).
This is partly because renewable electricity is intermittent and does not match the capacity of a coal plant one-for-one. A solar facility has a utilisation rate, or ‘capacity factor’, of ~20%, meaning it is not generating 80% of its stated capacity. In other words, to deliver the same amount of energy to a customer as a coal plant running at full tilt, five times as much solar capacity is required. For solar to supply energy like a coal plant, you would also need to attach a battery to store the energy so that it can be used at night.
It is also partly because our electricity demand is growing. As incomes rise, people typically use more electricity – this is particularly the case in high-growth emerging markets. Even in developed countries, demand is set to increase as we shift transport and heating from fossil fuels to electricity. To switch off coal, renewable development needs to keep up with the pace of new energy demand, as well as retirement of facilities that are still able to deliver electricity.
Neither the commercial nor the engineering challenges are insurmountable. Indeed, many countries do not use coal for their electricity grids and have cheaper electricity than countries who do.
What stands in the way of coal retirements comes down to politics and vested interests.
In the UK, our political leaders took a painful stand when coal mining became too expensive and shut down the mining industry over the course of a decade. This devastated communities, some of which have still not recovered, but helped to kickstart coal’s decline in our electricity grid. The government later took on coal-fired electricity by supporting renewable energy through contracted revenue and subsidies. The nail in the coffin was the introduction of a carbon price in 2013, making it unviable to operate coal plants cost-competitively. Electricity demand also fell over this time period from a combination of efficiency measures and outsourcing of manufacturing, placing less pressure on replacing coal assets. To retain a resilient system, the government introduced capacity markets, where plants that can deliver reliable power are paid to be on stand-by.
Why has this similar commitment not happened in other coal-dependent nations?
Although they have taken significant action to support renewable energy, a backlash against nuclear and gas supply shocks have driven places like Germany and Japan to rely more on coal.
The US is the world’s second largest coal consumer and one of the world’s richest nations on a GDP per capita basis. 21 states produce coal, and 40 use it for electricity. It continues to use coal because the government does not price carbon emissions, its coal lobby is powerful, and its political system amplifies the views of small coal-rich states, like West Virginia and Wyoming.
Carbon prices and their abandonment are part of Australia’s coal story as well. So too is system reliability and taking on the risks of the private sector to ensure that Australians don’t experience blackouts, even as coal plants become intolerably expensive. Coal communities are vocal about compensation given the dearth of alternative jobs, and have attracted large support packages, raising the potential cost of decommissioning coal by several billion dollars over the coming decades.
In emerging markets, the likelihood of a self-perpetuated coal decline is even lower.
India’s coal fuels a modernising economy, and as more Indians consume higher levels of power, it will be difficult to retire any capacity. The best sites for renewables and coal are diversified across the country, and communities with an abundance of coal depend upon it for their livelihoods. Coal states rely on revenues for their income, creating political incentives to keep coal mines operational. Coal India Limited, the world’s largest coal mining firm, is 75% owned by the government and supplies over 80% of India’s coal plants. Unlike the UK government’s lossmaking mining operations, this business pays dividends to the Indian Treasury. Continuing to use coal-fired electricity keeps these profitable coal mines in business.
In places like Indonesia and South Africa, state owned utilities have signed offtake agreements with mines for decades in advance, making power plant shutdowns economically untenable. Shutdowns are politically challenging too, as hundreds of thousands of South Africans and Indonesians still rely on coal mining for work, with limited alternatives close to their home. As recently as 2010, the World Bank was underwriting new plants which signed these offtake agreements. Layer on a system of corruption and mismanagement that discourages investors from building affordable renewable energy and they are stuck with coal for the next forty years at least.
China has manufactured the world’s renewable energy inputs, powered by the world’s largest fleet of coal plants. They are leading the world on installing solar and wind, and wear the crown for coal plant commissioning, installing two thirds of the world’s new coal plants in 2023. China’s move towards coal is practical, in that it can power factories that produce the renewable infrastructure that will replace them.
It is also for energy security. 90% of its coal consumption is met domestically, versus half for gas and a third for oil. It is hard to imagine China, with per capita income one sixth the level of the US, decreasing its electricity use or installing a surplus of 1 terawatt of electricity to retire its coal plants in the next twenty years.
Even the UK’s journey to low-cost electricity decarbonisation is not yet complete. Coal has been replaced with a combination of expensive gas (about half as carbon intensive as coal) and wood chips burning in the old coal facilities, masquerading under the euphemism of “biomass”. Renewable energy firms are the new vested interests. Biomass lobbyists are advocating for carbon capture to justify continuing to burn wood as fuel, while the wind industry is against locational price reforms that would lower costs for consumers but disadvantage renewable projects. This represents one of the difficulties of removing baseload power without a low-cost, low-carbon alternative, and the political capture by energy companies pushing their vision of low-carbon energy sources.
Accelerating the decline of coal to 0% by 2040 seems impossible given the current trajectory. To do it, we cannot rely on a slow, natural death for the coal industry.
Donors and investors have proposed a deal-maker’s approach: pay the coal plants to switch off early. In some cases, this is self-serving, as donor nations are some of the shareholders and lenders for coal projects abroad. In other cases, this is expensive, and enriches coal plant owners at the expense of funding for new projects or impacted communities.
We should instead be thinking bigger. We need a price on carbon, globally, so that the world can reorganise its energy systems in the most cost-efficient way possible. Rather than allocate these proceeds to green technologies, we could invest these funds in places that lose out in the energy transition, so that they can reinvent their economies. We need more renewable energy capacity to come online faster, along with storage, and we need to make it easier to plan, permit and build these projects. Our development institutions should be offering even lower financing rates to countries with high borrowing costs and low debt capacity, and doing so in local currency. More investment in distributed energy could alleviate grid constraints and improve reliability. Nuclear is a strong candidate to meet our baseload power requirements, if we could get over our collective nervousness.
If we are to make any progress at all, we need to understand that coal isn’t going anywhere without more of a fight. Good news stories on renewables may bolster optimism. They also breed complacency.