Drax Power Station, once Europe's largest coal-fired power station, which is converting to be ... [+]
Governments around the world are keen to return their economies to growth after the COVID-19 pandemic has run its course.
But they need to make sure that, in their rush to ramp up production, they do not lock in uneconomic and climate unfriendly coal power for decades to come, a new report warns.
Financial think tank Carbon Tracker warns that if nations such as China build new capacity to stimulate their economies in the wake of the COVID-19 pandemic, they may not only produce more pollution but spend valuable taxpayers’ money keeping them open as well. The report finds that 46% of global coal plants will be running at a loss in 2020, a figure that will rise to 52% by the end of the decade.
Carbon Tracker revealed last month that it is already cheaper to generate electricity from new renewables than new coal plants in all major markets. By 2030 at the latest it will be cheaper to build new wind or solar capacity than continue operating coal worldwide.
Global coal use in electricity generation must fall by 80% below 2010 levels by 2030 to limit global warming to 1.5°C, according to analysis of recent research from the UN’s Intergovernmental Panel on Climate Change.
At the same time, decarbonisation of the global energy system can grow the global economy and create up to 28 million jobs by 2050, according to IRENA, the International Renewable Energy Agency.
Yet, although renewables and gas are outcompeting coal worldwide, government subsidies are propping up coal power and driving plans to build nearly 500GW of new coal capacity, the report, Political Decisions, Economic Realities, found.
China, which produces and consumes about half the world’s coal, may be planning to build more coal plants to stimulate its economy in the wake of COVID-19. The country’s National Energy Administration recently announced it was ready to relax rules on coal power investment.
Globally governments are propping up expensive coal plants: 90% of coal capacity which is operating, in construction or planned is in countries with regulated or semi-regulated markets where coal power generators are implicitly or explicitly subsidised.
By contrast, in deregulated markets most coal power is already unprofitable on an underlying basis – 90% in Germany and 82% in the UK in 2019.
Carbon Tracker analysed the underlying cashflow of 95% of operating and planned coal plants worldwide and found that: In China, 59% of the country’s existing 982GW coal fleet is running at an underlying loss; a further 206GW is in the pipeline but 61% would enter the market with negative cashflow. Already 71% of operating coal power costs more to run than building new renewables.
• In India, a regulated market, 2% of the existing 222GW coal fleet is running at an underlying loss; a further 66GW is in the pipeline but 23% would enter the market with negative cashflow. Already 51% of operating coal power costs more to run than building new renewables.
• In Europe, which is mostly deregulated, 62% of the existing 146GW coal fleet is running at an underlying loss; half the 8GW of planned new coal would enter the market with negative cashflow. Already 96% of operating coal power costs more to run than building new renewables.
• In the US, where two thirds of coal plants are regulated, 22% of the existing coal fleet is running at an underlying loss. No new plants are planned. Already 47% of operating coal power costs more to run than building new renewables.
With renewables and gas are already outcompeting coal worldwide, if governments deregulate power markets to allow greater competition the percentage of unprofitable coal plants will be far higher.
Matt Gray, Carbon Tracker co-head of power and utilities and co-author of the report, said: “China and other governments may be tempted to invest in coal power to help their economies recover after the COVID-19 pandemic, but this risks locking in high-cost coal power that will undermine global climate targets.
“Building new coal and propping up the existing fleet with stimulus money would be throwing good money after bad. Faced with the need to invest billions in their economies and create new jobs, governments should be planning for a green recovery by incentivising the closure of coal and spending on a major expansion of low-cost, clean renewable power.”
The report says China should reconsider plans to spend $158 billion on 206GW of new coal power because “renewable energy and battery storage are more viable and sustainable sources of economic growth”.
The virus will not change the underlying profitability of China's coal plants but the economic downturn caused by the outbreak risks relaxing the planning process and environmental regulations associated with any future investment.
Carbon Tracker says that governments and investors building new coal may never recoup their investment because coal plants typically take 15 to 20 years to cover their costs.
“Governments and investors have a responsibility to navigate a transition away from coal in an orderly way to ensure consumers receive low-cost energy and investors plan for premature closures,” says the report.
“Policymakers urgently need to deregulate power markets to create a negative investment signal for coal project developers and ensure least-cost power generation technologies are built. Failure to do so could mean locking in 499GW of high-cost coal power for decades.”
