It’s only been a few days since latest report of the Intergovernmental Panel on Climate Change (IPCC) pointed out the dire consequences of human-induced climate change. At the center of this stark warning from UN Secretary General António Guterres and the scientists behind the report was the urgent need to sharply reduce carbon in the energy mix.
However, in the run-up to publication, and absent from mainstream news headlines, he was the steady climb from coal prices, past US $ 100 (£ 72) per metric ton in June and then more than US $ 130 in mid-July to more than US $ 170 today. This is almost four times the price of last September.
The price increase can be directly attributed to a resurgence in demand after the depths of the pandemic, especially in emerging Asian markets such as China and India, but also in Japan, South Korea, Europe and the United States. Demand for electricity, which remains closely linked to coal, is expected to have increased by 5% in 2021 and a further 4% in 2022.
On the supply side, there are also some issues like china being incapable to acquire coal from Australia due to an import ban and minor interruptions in export production by major producers Indonesia, South Africa and Russia. But there are no long-term supply problems, as the major producing countries have not reduced their production or export capacity. Therefore, prices should not remain high for a long time.
The price of coal (US $ / metric ton)
The revival in global energy demand is expected to mean that the global economy is recovering from the pandemic, but rising coal prices are a reminder of how energy still depends on fossil fuels. Global energy consumption They totaled 556 exajoules in 2020, and oil, coal, and natural gas accounted for 31%, 27%, and 25% of the total, respectively. That adds up to more than four-fifths of the total.
Coal has two main uses, the generation of electricity and the manufacture of steel, the former being responsible for about two thirds of what is consumed. The faster we can remove coal from electricity generation, the greater the probability of achieving the Paris Agreement objectives.
However, charcoal appears to be tough, if not stubborn, when it comes to disposal. Since 2010, the percentage share of natural gas in total global electricity generation has remained the same at 23% despite the fact that global energy consumption has increased by about a quarter. The percentage share of renewable energies, excluding hydroelectricity, has tripled and its actual generation in terawatt hours (TWh) has quadrupled. Meanwhile, coal has lost share, to 35% from 40%, but it is still well ahead of natural gas, its closest competitor, and the amount of coal we burn for electricity has increased overall.
Global electricity mix 2020 vs 2010
The reality is that coal makes good business sense. Coal-fired power plants have long been large enough to make construction costs economically viable, with the largest plants boasting a capacity of 5 GW. Fuel is relatively cheap most of the time, and the biggest consumers, China, the United States and India, enjoy politically secure supplies.
Coal-fired generation is constant and predictable, which makes it suitable to guarantee the minimum level of electricity that a country needs continuously, known as base load. This ensures that the proportion of fuel converted to electricity, known as capacity utilization, is typically greater than 70%. This has been affected by the continued push to replace coal with renewables and natural gas, taking it as low as 53% in 2019But given current levels of demand, we should expect it to be higher by 2021.
All of this translates into steady revenue streams from the sale of coal-fired electricity to the grid in many countries, making this power source attractive to investors. When it comes to the triptych of security of supply, affordability and sustainability, charcoal serves the first two with ease, even when it leaves a big dirty spot on the third.
The biggest users
The spectacular Chinese economic growth of the last 20 years and the considerable expansion of the electrification of the Indian economy relied heavily on coal. Thanks to them, the the world has doubled its coal burning capacity from 2000 to more than 2,000 GW.
In 2020, coal generated 63% of electricity in China and 72% in India. In the same year, China produced half of the world’s coal, almost 4 billion tons, while India was a distant second with around 750 million tons. Between them, the two countries accounted for two-thirds of world consumption and were also the two largest importers. The figures really amaze the mind.
Electricity generation in China
Electricity generation in India
Elsewhere, coal lags behind. In the United States, the second largest generator of electricity after China, coal has retreated in favor of natural gas. It shot up 20% of US electricity in 2020 compared to 43% in 2010, while natural gas has increased over the same period from 24% to 40%.
In Germany, coal generation has been matched by wind, while in the UK coal is used only as backup. Similarly, Japan and South Korea are expanding their natural gas, nuclear, and renewables in an effort to reduce the carbon footprint of their electricity generation. Even China has joined the effort by adding new solar and wind capacity.
Nonetheless, from a business perspective, it is clearly still difficult to phase out coal around the world: The West has essentially exported the problem to China because much of the world’s heavy industry has moved there. Coal plants are long-term investments, often 40 to 50 years. A plant built in 2000 is only in the middle of its life, so shutting it down now, as desirable as it may be, would ruin investors’ economy.
Unless coal prices remain permanently high (unlikely), or the cost of carbon emissions is more prohibitive due to taxes or carbon trading schemes (possible, but perhaps not everywhere), or If there is direct government intervention in decommissioning plants, coal may still surprise us. everything and persist for longer than expected. For the sake of future generations, let’s hope not.