The value of coal skyrocketed in 2021 – what does that imply for internet zero? – Watts with that?

Andrey Andrejew, CC BY-SA

Michael Tamvakis, City, University of London

Just a few days ago, the latest report by the Intergovernmental Panel on Climate Change (IPCC) highlighted the dire consequences of man-made climate change. At the center of this urgent warning from UN Secretary General António Guterres and the scientists behind the report was the urgent need to sharply reduce coal in the energy mix.

However, ahead of its release, rather than making the mainstream news headlines, there has been a steady spike in coal prices, over $ 100 (£ 72) per tonne in June and then over $ 130 in mid-July to over $ 170 today . That’s almost four times the price last September.

The price hike is clearly due to a resurgence in demand after the depths of the pandemic – particularly in emerging Asian markets like China and India, but also in Japan, South Korea, Europe and the US. Electricity demand, 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 problems, such as the fact that China cannot source coal from Australia due to an import ban, and minor disruptions in the export production of the large producers Indonesia, South Africa and Russia. But there are no long-term supply problems as the main producers have not restricted their production or export capacities. The prices should therefore not stay high for long.

The price of coal (US $ / metric ton)

The revival in global energy demand will hopefully mean the global economy will recover from the pandemic, but the rise in coal prices is a reminder of how energy still relies on fossil fuels. Global energy consumption was 556 exajoules in 2020, and oil, coal and natural gas accounted for 31%, 27% and 25% of total energy consumption, respectively. That is more than four fifths of the total.

Stubborn coal

Coal has two main uses, generating electricity and making steel, with the former accounting for about two-thirds of our consumption. The faster we can remove coal from generating electricity, the more likely it is that we will meet the goals of the Paris Agreement.

However, coal seems resilient, if not stubborn, when it comes to getting rid of it. Since 2010, the percentage share of natural gas in total global electricity generation has remained the same at 23%, although world electricity consumption has increased by around a quarter. The percentage of renewable energies excluding hydropower has tripled and the actual generation in terawatt hours (TWh) has quadrupled. Meanwhile, coal has lost its stake from 40% to 35% but remains way ahead of natural gas, its closest competitor, and the amount of coal we burn to generate electricity has increased overall.

Global electricity mix 2020 vs. 2010

BP Statistical Review of World Energy

The reality is that coal makes good business sense. Coal power plants have long been big enough to make construction costs economical, with the largest plants having an output of 5 GW. Fuel is mostly relatively cheap, and the largest consumers, China, the US and India, all enjoy politically secure supplies.

Electricity generation from coal is constant and predictable and is therefore suitable for ensuring a country’s minimum electricity requirement – the so-called base load. This ensures that the proportion of fuel that is converted into electricity, the so-called capacity utilization, is typically over 70%. This was influenced by the ongoing drive to replace coal with renewables and natural gas and was only 53% in 2019, but given the current level of demand, we should expect a higher figure in 2021.

All of this leads to steady streams of income from the sale of coal electricity to the grid in many countries, which makes this source of electricity attractive to investors. When it comes to the triptych of security of supply, affordability, and sustainability, coal serves the first two with ease while it leaves a major smudge on the third.

The biggest users

The spectacular Chinese economic growth of the past 20 years and the significant expansion of electrification of the Indian economy have been largely based on coal. Thanks to them, the world has doubled its coal-fired capacity since 2000 to over 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 took second place with around 750 million tons. Together, the two countries accounted for two thirds of world consumption and were also the two largest importers. The numbers are really astounding.

Power generation in China

BP Statistical Review of World Energy

Power generation in India

BP Statistical Review of World Energy

Coal is on its backfoot elsewhere. In the USA, the second largest electricity producer after China, coal has withdrawn in favor of natural gas. It fired 20% of US electricity in 2020 up from 43% in 2010, while natural gas rose from 24% to 40% over the same period.

In Germany, coal production was achieved by wind power, while in the UK coal is only used as a backup. Similarly, Japan and South Korea are expanding their natural gas, nuclear and renewable energies to reduce the CO2 emissions from their electricity generation. Even China has joined the effort, adding new solar and wind capacity.

Still, from an economic standpoint, it clearly remains difficult to eliminate coal globally: the West essentially exported the problem to China because so much of the world’s heavy industry has been relocated there. Coal power plants are long-term investments, often 40 to 50 years. A plant built in 2000 is only halfway through its lifecycle, so decommissioning, however desirable it may be, would ruin the profitability for investors.

As long as coal prices do not stay high (unlikely), or the cost of carbon emissions due to taxes or carbon trading systems are unaffordable (possible, but maybe not everywhere), or there is direct government intervention in decommissioning facilities, coal could still surprise us all and last longer than we expect. In the interest of the next and following generations, we hope that this is not the case.

Michael Tamvakis, Professor of Natural Resources and Finance, City, University of London

This article was republished by The Conversation under a Creative Commons license. Read the original article.

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