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Energy: The evolving role of coal in the energy mix

The main driver of coal’s fall is the power sector, where lower gas prices and a surge in renewables and energy efficiency improvements have put a major dent on coal consumption across the globe.

Coal use will remain flat in the coming years, but its share in the energy mix will fall - Coal was the world’s largest source of energy from the start of the Industrial Revolution until 1960 when it was surpassed by oil. Owing to higher energy density and versatility, oil displaced coal in both transportation and many industrial applications. Yet despite this, in addition to the emergence of nuclear energy, natural gas and more recently, wind and solar, coal remains the second largest source of energy today.

In fact the growth of coal at the start of the 21st century was staggering. At almost 5% per year, coal accounted for roughly half of the additional global primary energy from 2000 to 2012. In other words, in that period coal supplied almost the same additional primary energy as oil, natural gas, nuclear, and renewables combined. It increased its share in primary energy from 22.5% to over 29%, edging closer to the 32% share that oil had at that time. Or, to put it in a different scale, the absolute increase of coal use in those 12 years was larger than in the former 60 years.

However the story is beginning to change. From 2012 global demand growth slowed substantially and in 2015 we witnessed the first decline since 2000. In 2016, global coal demand dropped further, resulting in a total fall of 4.2% from 2014 to 2016. This drop was by far the largest decline in absolute terms on record and nearly matches the decline of 1990-1992, which was the largest two-year decline recorded since the IEA was formed in 1974. In 2017, coal use rebounded, but with growth very far from the first decade of the century.

Evolution of global coal demand.png Source: From 1999 to 2016 are IEA statistics (Coal Information 2017). From 2017 to 2022 are IEA forecast (Coal 2017)

What happened? The main driver of coal’s fall is the power sector, where lower gas prices and a surge in renewables and energy efficiency improvements have put a major dent on coal consumption across the globe. Substitution for natural gas in industrial and residential sectors has also been a contributor.

From a regional perspective, the main driver of both the growth during the first decade and the halt afterwards was China. The extraordinary economic growth and infrastructure development of the country resulted in a big increase of electricity, steel, cement and other energy-intensive industries. Coal, the most abundant domestic energy resource, fueled that growth. However, a combination of circumstances has halted the growth of coal use in China. The country has entered a new phase of development, with lower energy intensive growth; the policy of diversification from coal which includes development of nuclear and renewables, both hydro, wind and solar, has yielded good results; and the fight against air pollution has led to a large substitution of coal for gas and electricity in the industrial and residential sectors.

Share of coal use globally.png

So how will this continue? IEA forecasts that coal demand will grow slightly to 2022, but will only recover the ground lost during the 2014-2016 period. This indicates a decade of stagnation in global coal demand. Coal-fired power generation increases by 1.2% per year through 2016-22, its share of the power mix falls to just below 36% by 2022, the lowest level on record, down from 41.1% in 2013. Likewise, coal’s share in the primary energy declines below 26%. Yet this is still a significant share.

Looking ahead further to 2040 under the World Energy Outlook New Policies Scenario, coal demand could be only just about current levels though owing to growing energy demand, its share in primary energy will decline to 22%. In our Sustainable Development Scenario, in which CO2 concentration stabilizes at 450ppm, coal demand quickly declines at a rate of over 3% per year, ultimately contributing just 13% of the energy mix by 2040. Clearly long-term coal demand is very much dependent on climate policies yet coal is not going to disappear overnight, and the futurefuture
Contratto a termine standardizzato, stipulato all'interno di un mercato regolamentato, in cui chi lo sottoscrive si prende l'obbligo di acquistare o vendere un determinato bene ad una data e prezzo prefissati.
of coal varies significantly by region.

In Europe as a whole, the decline of coal began some years ago and will continue – most countries in Western Europe have closed or are gradually closing their coal-fired power plants. The list of countries which have committed to phase out coal from their power mix include Sweden (2022), France (2022), United Kingdom (2025), Italy (2025), Austria (2025), Netherlands (2030), Finland (2030), Portugal (2030), Ireland and Denmark (exact date to be established). These countries will join Belgium, Switzerland and Norway, which currently have zero coal power generation. Whereas in most of the 10 listed countries coal does not play a relevant role in the power mix, replacement of over 160 TWh, or 10% of electricity generation and around 40GW of dispatchable capacity, will require a deep reassessment of electricity and gas security. Indeed, the links between electricity and gas markets are significantly reinforced by the coal phase-out, and hence, gas supply issues might have bigger impact on electricity supply than before the closure.

Global electricity generation by fuel through 2040.png

The story is different in Eastern Europe and the Balkans, where countries like Bulgaria, Czech Republic, Greece or Romania are dependent on coal, mainly domestic lignitelignite
Tipologia di carbone caratterizzato da un grado di maturazione poco spinto. Essa, infatti, presenta un contenuto di carbonio pari al 67 % circa, contro l'85 % dei carboni impiegati per scopi energetici.
. Given the social and regional problems associated with mine closures and energy security considerations, a coal phase-out in those countries is much more unlikely. In Poland, for instance, where coal still supplies 80% of electricity and hard coal and lignite mines sustain tens of thousands jobs, a number of modern ultra-supercritical plants either have been just commissioned or are under construction: 900 MW Opole B5, 900 MW Opole B6, 1075 MW Kozienice, 910 MW Jaworzno III and 1000 MW Ostroleka. Coal will remain a substantial part of Polish power mix in the coming years.

A more nuanced case is Germany, where despite clear political will the phase out of coal generation is extremely challenging: coal still represents around 40% of electricity generation while nuclear, currently accounting for more than 10% of the power mix, will be phased out by 2023. In addition, most coal generation comes from domestic lignite, so any phase out implies the closure of adjacent mines, with significant social and regional effects.

In India, despite rapid growth of renewables, coal use will continue to rise. With a growing fleet of coal power plants running at less than 60% of capacity and robust power demand growth, coal-fired generation is forecast to increase at nearly 4% per year on average in the coming years. Outside of the power sector, growth in thermal coal demand is concentrated in the industrial sector, thanks to robust economic growth, as well as in coking coal, thanks to rising steel consumption, housing, railways and steel-intensive industries like shipbuilding, defense and vehicle manufacturing.

Across South East Asia – and particularly in Indonesia, Vietnam, Malaysia and Philippines – coal demand is set to grow, driven by power generation. Yet significant differences exist between them. Indonesia is the fourth world’s largest country by population, with very low per capita electricity consumption and is the largest exporter of thermal coal by far. Coal is an important piece of the strategy to fuel economic growth and higher standards of life for its population. In Vietnam and Philippines, although there are also coal reserves, imported coal will play a big role in growing electrification. Finally in Malaysia, where coal reserves are very scarce, electricity consumption is close to the global average. Here the buildup of coal power generation is more related to diversification from gas in the power mix rather than the need to ramp up power output as fast as possible.

Other countries in Asia region where coal demand will grow are Pakistan and Bangladesh. In Pakistan, a country with 200 million people, per capita consumption is just over 100 TWh of electricity per year. This is about 500 kWhkWh
Unità di misura dell'energia elettrica equivalente a 1.000 Wh (wattora), ovvero 1.000 W forniti o richiesti in un'ora.
per year per capita, or sixteen times less than the average in the OECD region.Endowed with vast reserves in its Thar lignite field, Pakistan is betting on domestic and imported coal to expand electricity supply in the coming years. Projects announced using imported coal account for 7 GW, plus more than 3 GW based on domestic lignite.

Although moving much slower than Pakistan, Bangladesh is also planning an expanded role for coal with 19 GW of new coal power generation capacity announced. By contrast, the expectations that Egypt may become a large coal consumer (and importer) cooled significantly in 2017 after the government decided to postpone coal projects until 2022. Meanwhile, Dubai is set to open the first large coal power plant in the Middle East when Hassyan coal power plant (2 400 MW) starts operation.

China currently accounts for half of the global coal demand, and will be the main determinant in future global trends for coal. Whereas coal power generation remains strong, coal substitution in small industries and residential heating, together with higher efficiency in power, steel and cement industries has made a dent in coal demand.

Difference of power generation by sources in China.png

Improving air quality has also become a major policy priority, and the shift from coal to gas, combined heat and power and electricity solutions in the residential and industrial sectors (other than steel and cement) will have a significant effect on coal use. This combined with saturation of growth in the coal intensive heavy industry will drive coal demand down through 2022. 

Remarkably, this fall in demand will take place despite growth in coal conversion and in coal-power generation. Coal conversion growth is supported by the projects in the pipelinepipeline
Condotta adibita al trasporto di gas.
for coal-to-liquids, coal-to-gas and coal-to-chemicals. Regarding the power sector, given coal is the marginal supplier of electricity in China (the role of gas is minor and the other sources are largely must-run sources), electricity consumption and output of the other power sources in China are key to understand coal demand trends. Growth in hydro, which was outstanding in the past, growing from 200 TWh produced in 1999 up to over 1 100TWh today, will slow significantly in the coming years, as further developments are more challenging. Wind and solar will grow very strongly, but today they barely represent 7% of power generation. Nuclear development will be also significant. Growth in nuclear, wind and solar versus power demand growth is the main equation which will determine coal power generation, which is expected to grow slowly in the coming years before levelling off and decrease.

As all fossil fuels, including not only coal but also gas and oil, will continue to be used in the future, it is crucial to develop Carbon Capture, Utilisation and Storage (CCUS). CCUS is a family of technologies and techniques that enables the capture of CO2 from fuel combustion or industrial processes, the transport of CO2 via ships or pipelines, and utilization in practical applications or its storage underground. The IEA has called for urgent action to support CCUS. Despite recent progress with the commissioning of a number of projects in different sectors, the lack of policy support means that investment in CCUS continues to lag far behind that of other low carbon technologies.

The need for urgent action to boost CCUS technologies was recognized by governments and industry at a high-level Summit hosted by the IEA in November 2017, co-chaired by Rick Perry, the US Secretary of Energy and Dr Fatih Birol, the IEA Executive Director, and attended by Ministers and top government officials from several countries as well as CEOs and senior executives from major energy companies. CCUS can reconcile the reality of continued use of coal (and gas) in the power sector and the urgent need for emissions reductions. It is also one of few solutions able to deliver deep emissions reductions in key industrial sectors such as steel, cement and chemicals production.

While the availability of CCUS is expected to play an important role in determining coal’s future, CCUS is not only about power generation and it is not only about coal. Deployment of CCUS is a condition sine qua non in order to have a low carbon future.


Articolo di Carlos Fernandez Alvarez (International Energy Agency - Senior analyst) per  Orizzontenergia


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Data: 25/05/2018

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