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Coal industry will never recover after
coronavirus pandemic, say experts
Crisis has proved renewable energy is now a safer
investment, and accelerated the shift
Jonathan
Watts and Jillian Ambrose
Published
onSun 17 May 2020 11.01 BST
The global
coal industry will “never recover” from the Covid-19 pandemic, industry
observers predict, because the crisis has proved renewable energy is cheaper
for consumers and a safer bet for investors.
A long-term
shift away from dirty fossil fuels has accelerated during the lockdown,
bringing forward power plant closures in several countries and providing new
evidence that humanity’s coal use may finally have peaked after more than 200
years.
That makes
the worst-case climate scenarios less likely, because they are based on a
continued expansion of coal for the rest of the century.
Even before
the pandemic, the industry was under pressure due to heightened climate
activism, divestment campaigns and cheap alternatives. The lockdown has exposed
its frailties even further, wiping billions from the market valuations of the
world’s biggest coal miners.
As demand
for electricity has fallen, many utilities have cut back on coal first, because
it is more expensive than gas, wind and solar. In the EU imports of coal for
thermal power plants plunged by almost two-thirds in recent months to reach
lows not seen in 30 years. The consequences have been felt around the world as
well.
This week,
a new report by the US Energy Information Administration projected the US would
produce more electricity this year from renewables than from coal for the first
time. Industry analysts predict coal’s share of US electricity generation could
fall to just 10% in five years, down from 50% a decade ago. Despite Donald
Trump’s campaign pledge to “dig coal”, there are now more job losses and
closures in the industry than at any time since Eisenhower’s presidency 60 years
ago. Among the latest has been Great River Energy’s plan to shut down a
1.1-gigawatt thermal plant in North Dakota and replace it with wind and gas.
Rob
Jackson, the chair of Global Carbon Project, said the pandemic was likely to
confirm that coal will never again reach the global peak seen in 2013:
“Covid-19 will slash coal emissions so much this year that the industry will
never recover, even with a continued build-out in India and elsewhere. The
crash in natural gas prices, record-cheap solar and wind power, and climate and
health concerns have undercut the industry permanently.”
Records are
falling thick and fast. By Friday, the UK national grid had not burned a single
lump of coal for 35 days, the longest uninterrupted period since the start of
the industrial revolution more than 230 years ago. In Portugal, the record
coal-free run has extended almost two months, the campaign group Europe Beyond
Coal recently reported.
Last month
Sweden closed its last coal-fired power plant, KVV6 in Hjorthagen, eastern
Stockholm, two years early because the mild winter meant it was not used even
before the pandemic. Austria followed suit with the shutdown of its only
remaining coal plant at Mellach. The Netherlands said it would reduce the
capacity of its thermal plants by 75% to comply with a court order to reduce climate
risks.
More
importantly, in India – the world’s second-biggest coal consumer – the
government has prioritised cheap solar energy rather than coal in response to a
slump in electricity demand caused by Covid-19 and a weak economy. This has led
to the first year-on-year fall in carbon emissions in four decades, exceptional
air quality, and a growing public clamour for more renewables.
Elsewhere
in Asia, the picture is mixed. A few years ago, Indonesia, Vietnam and the
Philippines were expected to be the industry’s biggest growth areas, but the
pandemic, falling renewable prices and a growing divestment campaign have put
several major coal projects on hold. South Korean president Moon Jae-in has
been re-elected on a pledge to phase out domestic coal use, and many in his
ruling coalition are pushing to end financing of overseas projects. In Japan,
the big three commercial lenders and the governor of the Japan Bank of
International Cooperation have recently said they will no longer accept
proposals for coal generation.
Other money
taps are also being turned off, as investors and finance houses respond to
scientific advice and campaigns by divestment activists and school strikers
such as Greta Thunberg.
“The
economics of coal were already under structural pressure before the pandemic,”
said Michael Lewis, the head of climate change investment research at French
bank BNP Paribas. “And coming out of it these pressures will still be there –
but now compounded by the impact of the pandemic.”
BNP Paribas
is one of a growing list of financial institutions which have chosen to sever
ties with coal. The bank said last week that it would accelerate its planned
exit from coal financing to 2030 to bring its portfolio in line with the Paris
climate goals sooner.
In the same
week, the Norwegian sovereign wealth fund – the world’s biggest – ditched a
host of coal mining and energy companies, including Glencore, Anglo-American,
Vale and AGL over climate concerns. This follows coal blacklisting
announcements by BlackRock, Standard Chartered and JPMorgan Chase.
The fossil
fuel has fallen from favour in the eyes of many investors due to rising climate
concerns, cheaper renewable energy alternatives and a public backlash against
air pollution.
“The public
health benefits of cleaner air will be front and centre after weeks of lockdown
that have prompted blue skies and clean air in Asia’s megalopolises,” Lewis
said. “This pressure from the finance sector will only accelerate going
forward, pushing the cost of capital for coal projects even higher.”
Even before
the pandemic, Australian coal companies said they were finding it hard to find
financing for mines and port facilities due to the international divestment
campaign. This is not the only economic squeeze. A near-30% fall in the price
of thermal coal has made more than half of production unprofitable, prompting
several firms to warn of pit closures and layoffs.
The
elephant in the room is China, which burns half of the world’s coal and is the
biggest financier of mines and power plants in Asia and Africa – largely to
provide an export market for its domestic manufacturing and engineering firms.
A few years ago, domestic coal consumption fell, prompting hopes that president
Xi Jinping was committed to a shift away from dirty, high-emitting power
production. But after the lockdown, the political priority is to jumpstart the
economy. Provincial governments are now working on a slew of new thermal
plants. But they are running at less than half of capacity because demand for
coal has not returned to its previous level.
“Covid-19
has made clear that China and India have built more than they need. Even before
the crisis, they had overcapacity. Now with lower demand, you can see
everything is a mess,” said Carlos Fernández Alvarez, lead coal analyst at the
International Energy Agency.
Alvarez
said coal had been hit hardest by the pandemic, but he cautioned the decline
could be temporary unless governments invest in renewables to pull economies
out of the lockdown. “We have to look at this structurally. If there is high
energy demand again in the future, it will probably be coal that picks up the
slack because it is the marginal supplier,” he said.
While
nobody is expecting coal to disappear any time soon, Ted Nace, director of
Global Energy Monitor, believes the balance has shifted for good. “Coal is
definitely on the downturn and this pandemic is going to accelerate that.
Demand should come back to some degree next year. But there is a very strong
argument that it is not going to just bounce back.”
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