The end of coal could be closer than it looks

Re­new­able en­ergy costs fall­ing, writes David Fick­ling.

Calgary Herald - - OPINION - David Fick­ling is a writer for Bloomberg.

Should we just give up now?

The world’s elec­tri­cal util­i­ties need to re­duce coal con­sump­tion by at least 60 per cent through 2030 to avoid the worst ef­fects of cli­mate change that could oc­cur with more than 1.5 de­grees C of warm­ing, the In­ter­gov­ern­men­tal Panel on Cli­mate Change an­nounced Mon­day.

Such a tar­get seems wildly am­bi­tious. But is it re­ally such a stretch?

Af­ter all, U.S. coal-power gen­er­a­tion de­creased by about a third in the seven years through 2017. In the Euro­pean Union, black-coal gen­er­a­tion fell by about the same pro­por­tion over just four years through 2016.

Across Europe and the U.S., the de­cline in coal out­put re­cently has av­er­aged close to five per cent a year. If the world as a whole can reach seven per cent a year, it would be on track to meet the IPCC’s 2030 tar­get.

The con­ven­tional wis­dom is that this isn’t pos­si­ble, as ris­ing de­mand from emerg­ing economies, led by China and In­dia, over­whelms the switch from fos­sil fu­els in richer coun­tries. That may un­der­es­ti­mate the chang­ing eco­nom­ics of en­ergy gen­er­a­tion, though.

For one thing, it as­sumes that Asian coun­tries will con­tinue to build new coal-fired plants at a rapid rate, even though re­new­ables are al­ready the cheaper op­tion in In­dia and head­ing that way in China and South­east Asia. For an­other, the fall­ing cost and ris­ing pen­e­tra­tion of wind and so­lar is so re­cent that we’re only just start­ing to see how they dam­age the busi­ness mod­els of con­ven­tional gen­er­a­tors.

Thanks to the de­fla­tion of re­cent years, re­new­ables al­ready pro­duce en­ergy at a lower cost than ther­mal power plants. That causes the over­all price of whole­sale elec­tric­ity to fall, re­duc­ing a con­ven­tional plant’s rev­enue per megawatt-hour. When this drops be­low the gen­er­a­tor’s op­er­at­ing costs, the only way to avoid los­ing money is to switch off al­to­gether. As a re­sult, the share of time when the plant is on and pro­duc­ing elec­tric­ity de­clines as well, fur­ther un­der­min­ing re­turns.

The shift from an al­ways-on “baseload” de­mand pro­file to a peaks-and-troughs one like this car­ries its own prob­lems. The act of ramp­ing up and down con­sumes fuel and causes the phys­i­cal plant to wear out faster. Ab­sent ex­pen­sive re­fur­bish­ments, that could take a decade off the 40- to 50-year life of a coal plant.

Re­searchers in Aus­tralia this year mod­elled the ef­fect of this sce­nario on that coun­try’s gen­er­a­tion mix. As­sum­ing that the cost of re­new­ables con­tin­ues to de­cline, they found the av­er­age retirement age of coal plants falls to 30 years from 50 years. As a re­sult, coal-pow­ered gen­er­a­tion drops by about 70 per cent be­tween 2020 and 2030.

It’s not hard to pro­duce com­pa­ra­ble re­sults for China’s more mod­ern coal fleet, whose fate will be the de­ci­sive in­flu­ence over elec­tric­ity-re­lated emis­sions in the com­ing decades. Let’s as­sume the ad­di­tion of net new gen­er­a­tion stops in 2020; that plant life re­duces to 30 years from 40 years; and that ca­pac­ity fac­tors grad­u­ally fall from the cur­rent 50 per cent to 35 per cent, still well above the lev­els of the U.K.’s coal gen­er­a­tors in re­cent years. The ef­fect of those op­er­at­ing changes alone re­duces coal­fired elec­tric­ity out­put in 2030 by about 40 per cent rel­a­tive to the higher sce­nario.

Of course, that’s not enough — but it’s also not an ou­tra­geously chal­leng­ing sce­nario. Fac­tor in a price on car­bon or other ro­bust gov­ern­ment in­ter­ven­tion and the de­cline would be much faster. It also as­sumes that re­new­ables pen­e­tra­tion in China a decade from now won’t be much more dis­rup­tive than in de­vel­oped coun­tries right now — and there’s rea­son to think that’s too pes­simistic.

Af­ter all, about half the cost of coal-fired power is the fuel it­self, which is cur­rently trad­ing at six-year highs. At present, while new re­new­ables are cheaper than new coal al­most ev­ery­where in the world, it’s still usu­ally more prof­itable to run ex­ist­ing ther­mal gen­er­a­tors than to de­com­mis­sion them and build re­place­ment wind and so­lar in­stead.

As wind and so­lar costs con­tinue to de­cline, the tip­ping point where new re­new­ables un­der­cut fully de­pre­ci­ated ex­ist­ing plants isn’t far off, though. When that hap­pens, you can ex­pect re­tire­ments to ac­cel­er­ate even faster.

The main­stream view is still that we can’t de­car­bonize our elec­tric­ity sys­tem fast enough. But a decade ago, the cur­rent si­t­u­a­tion of plateau­ing de­mand for coal and car fuel and cra­ter­ing re­new­ables costs looked equally out­landish. Given the way the world’s en­ergy mar­ket has changed in re­cent years, it’s a good idea to never say never.


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