The surge in coal prices in the past three years is cutting into the profitability of power stations that burn the fuel, a prominent forecaster said.
About 42% of the world’s coal generation capacity is losing money, according to Carbon Tracker, an energy researcher that advocates for climate protection. That proportion will rise to 56% by 2030, said Matthew Gray, a senior utilities and power analyst at the consultant.
While coal prices are forecast to fall 13% by the end of the next decade, the cost of emitting carbon dioxide is set to double in Europe and is forecast to jump in China, which is introducing an emissions trading market. Those factors will make the cost of polluting higher than the income most of the plants can generate, the researcher said.
Other big causes of the losses at coal plants are rules designed to limit air pollution as well as competition from wind and solar generation. Carbon Tracker’s analysis assumes existing rules stay constant. It doesn’t assume a big increase in other climate measures.
Demand for coal rose for the first time in two years in 2017, with China and India burning more than anyone else in a blow for environmental groups hoping to limit use of the dirtiest fossil fuel. The International Energy Agency’s annual World Energy Outlook published earlier this month indicates coal will remain a key fuel to provide heat and light through 2040.
Coal will help drive economic development in emerging nations and its future is secure for “decades to come” as energy demand increases by 25% by 2040, industry group the World Coal Association said on November 13.
“The Chinese are actually ramping up plans to build more coal,” Gray said by phone. Nations with regulated markets — where there’s little competition — may be left with higher energy costs if they follow China’s lead, angering consumers, he said.
In countries where there’s open competition in energy markets, including the EU and the US, investors in coal generation may end up holding low-value assets, Gray said. The new analysis will help “challenge the valuation assumptions for coal-fired power.”
© 2018 Bloomberg L.P