The fading market for coal
Technology innovation across energy efficiency, renewable energy and energy storage are driving a transformation of the world’s electricity market that is only expected to accelerate as the second half of this decade evolves. The success of Paris has been in the formulation of Individual Nationally Determined Contributions. Pledges by the three world leaders – China, America and India – will only accelerate the trend to decarbonise the world’s electricity markets.
Paris has served to highlight the inevitability of global policy action. The inevitable conclusion is that the global market for coal will continue to fade, and that the trends that have emerged over 2014 and 2015 will continue.
The Institute of Energy Economics and Financial Analysis (IEEFA) has written about 2013 being the year of peak coal consumption in China. The decline in 2014 of 2.6 per cent has accelerated during 2015, with coal consumption down 5-6 per cent year-to-date. China produces and consumes half the world’s coal. As such, the global coal industry is reeling from this unexpected decline of coal in China.
Any suggestion that China will reverse this direction ignores the significant policy momentum in China for continued electricity sector transformation. Only last week it was reported that China’s cabinet aims to cut pollution from coal-fired power plants by 60 per cent by 2020 through upgrades to coal fired power plants. This follows Beijing being hit with a number of days of Red Alerts for extreme, prolonged air pollution in the last two weeks.
Likewise, China has invested hundreds of billions of dollars building out high voltage grid transmission capacity that will progressively come on stream over 2016-2018. This will progressively enable to cost effective use of renewable energy capacity already operational in west China that in 2015 has seen curtailments reaching an average of 15 per cent. This will further erode coal-fired power generation in the south-east of China. And in 2017 China will commence its national emissions trading scheme, internalizing some of the costs of coal-fired power.