Appetite for coal power is waning inexorably

Coal is an anachronism that also happens to be the single largest source of electricity on the planet. Some of its resilience reflects pure politics (“beautiful clean coal”). But there’s another aspect more akin to that guilty pleasure that floods through you when you devour a hamburger. Like you, sometimes a country wants energy fast and doesn’t want to pay for fine dining.
The first, most obvious observation is that higher-income countries tend to be both less energy-intensive and use less coal. Equally, those using more coal tend to be energy-intensive developing economies, with China and India being obvious examples.
Start with the anomalies. Australia sticks out for being rich, energy efficient and yet addicted to coal—not a big surprise, given it is a huge producer. To a lesser degree, the same can be said of the US, but with the added spice of President Donald Trump’s patronage. Poland and Germany also have long-established mining industries, and the latter’s efforts to phase out nuclear power after Japan’s Fukushima disaster in 2011 left a big hole for coal to fill. The same obviously goes for Japan. Similarly, the Netherlands has used more coal in recent years to compensate for shortfalls in natural gas.
Just as Australia’s geology steers its choices, West Asia’s petro-states and Russia are obviously geared more towards oil or natural gas for generation. Similarly, Brazil’s hydropower riches and Mexico’s access to natural gas make them stick out as low-income, reasonably energy-intensive economies that nevertheless don’t burn much coal.
Looking at those anomalous developed economies, coal is clearly on the decline in most. The Netherlands announced earlier this year it would ban coal power in the coming decade. Trump’s love affair with coal hasn’t resulted in a renaissance. Similarly coal power still dominates in Australia today, but its prospects are waning.
Post-Fukushima, and always mindful of energy security, Japan encourages solar power but also embeds a role for more-efficient coal plants. In its latest Climatescope study, published earlier this month, Bloomberg New Energy Finance (BNEF) estimates new solar and onshore wind projects won’t out-compete new coal-plant economics in Japan until 2025 and 2040, respectively, much later than the rest of the world. And Japan’s attachment feeds resilience elsewhere in Asia, as the country’s financial institutions provide funding for new coal plants
outside the country.
The two countries that really matter, though, are those that fit the junk-food analogy best: China and India. In all three of the scenarios in the International Energy Agency’s World Energy Outlook, these two countries dominate any projected growth in coal burnt for power or contribute a large part of the decline in a greener climate.
This is coal’s last redoubt. Working in its favour is political power of incumbent mining industries employing millions in two countries, as well as sheer sunk cost. Between 2010 and 2017, China and India built a combined 432 gigawatts of new coal-fired capacity. To put that in perspective, the entire US coal fleet at end of 2017 was 279 GW.
Construction has slowed. However, continuing problems with air quality in Chinese and Indian cities and the rapid decline in the cost of renewable power and battery storage present chronic problems for coal. Solar power and onshore wind power are now the cheapest sources of new electricity in China and India, as they are in all major economies other than Japan, according to BNEF.
Those economics are what ultimately kill construction of new coal-fired plants. But the price of renewable energy needs to drop below running costs of existing plants in order to force their closure. BNEF estimates that point will be reached in China in about a decade, while for India it begins from the mid-2030s.
In some ways, the bigger headache here is for natural gas, which is uncompetitive in these growth markets. Unlike the US, where a combination of cheap shale gas and renewables is squeezing coal, the high cost of importing natural gas to Asia and coal’s sheer incumbency make natural gas the residual choice for power there. Strikingly, new renewables are already competitive with the running costs of existing gas-fired plants in India and are due to hit the same tipping point in China in the early 2020s.
Even so, the appetite for coal power is waning inexorably. At some point, why pay more for junk — in terms of money and health — when the healthier stuff is cheaper?

—Bloomberg

Liam Denning is a Bloomberg Opinion columnist covering energy, mining and commodities
. He previously was editor of the Wall Street Journal’s Heard on the Street column and wrote for the Financial Times’ Lex column. He was also an investment banker