At TransportBlog, we focus on transport and urban issues. However, other topics pop up occasionally. Energy and electricity have always had a link to transport – oil, one of the world’s most versatile energy sources, is mainly turned into petrol or diesel, but it can also be used to create electricity (NZ did this in a small way until the late ’70s). Electricity powers our trains, and could also be important for light rail and electric vehicles in the future.
At an energy conference a few years back, I heard a climate change expert talk about coal’s importance to the world power supply, and that China was opening a new coal power plant every week. If things kept going as they were, the world would have ‘locked in’ the rest of its carbon budget within five years.
What’s a “carbon budget”? This is the amount of carbon dioxide and other greenhouse gases which can be burnt before the world is set down a path of 2°C global warming. We’re not at that point yet, and it will be quite a few years before we reach it – but the problem is that we keep burning every year, and we really need to cut down on those emissions before we reach the end point.
The other problem is that many of the things that generate emissions are long lasting. A new coal plant is going to be around for decades, say 30-50 years. This is the thing about ‘locking in’ the carbon budget – investment decisions today will affect the level of emissions for a long time to come. Sure, you can build the coal plant and then shut it down after ten years, but that’s terribly expensive: the owner would never get a return in that time. Or, as an everyday example of these investment decisions with long-term implications, cars that roll off the assembly line today will be on the roads for 20+ years before they’re thrown on the scrapheap.
So I’m pretty happy to see that coal power is looking much shakier. I’ll start with a global view, then look at China, Australia and New Zealand.
It seems odd to us here in New Zealand, but coal still supplies almost half the world’s electricity. It’s also the highest-emissions way of generating power – natural gas is an improvement, although still quite emissions intensive.
Globally, coal consumption has been growing over the last 50 years, as shown in the graph below:
As the graph shows, coal demand has been growing much more slowly in the last few years, and even fell in 2015. The graph also shows the importance of China to what happens globally: this one country now accounts for half the world’s coal consumption, and pretty much all the consumption growth in the last decade.
Besides China, you’ve got the US (which grew until 2007 and then started dropping – part of this will be economic factors), the other OECD countries (demand falling slowly in the last few years), and the rest of the world. The ‘rest of world’ is growing quickly, mainly due to developing countries building new power plants. Essentially, coal consumption is shifting from the developed countries to the developing countries, which is likely to continue.
There’s an economic development question which has to be balanced with climate goals: is it fair to deny developing countries access to a very cheap energy source, when they don’t have the money to pay for more expensive energy and it’s the developed world which has made up the lion’s share of emissions to this point, and has much higher emissions per capita? It’s generally agreed that this isn’t fair, so it does get taken into account in world climate talks.
So where does coal head from here? Was that 2015 dip the start of a long-term decline, or does coal consumption stay flat, or will it start growing again? From a CNBC article:
[The International Energy Agency] expects worldwide growth in coal consumption to average just 0.6 percent between 2015 and 2021 as developed countries continue to abandon the energy source and China’s consumption plateaus. That will offset growing demand among emerging nations, particularly in India and Southeast Asia.
Whether coal demand returns to 2014 levels or falls short of the mark will largely depend on consumption in China, which accounts for about half of the world’s appetite… coal demand is falling in China, and the IEA believes it will continue to dip through 2018 before entering an upward trend through 2021.
The Energy Information Administration, part of the US government (not to be confused with the IEA!), projects world coal demand to grow by 0.6% per year through to 2040. However, this projection is almost a year old, so it may not reflect the latest changes in the coal market. Again, China is the big factor, and it seems to have changed tack in the last year.
In the last year or so, China has made some big announcements on coal. It cancelled 103 plants which were planned or under construction, and won’t approve any new plants entirely until the start of 2018. However, another article gives some useful context on the issue: China’s aim is to have 1,100 gigawatts of coal capacity by 2020, compared with 920 at present – but there were so many power plants being built or planned that it would have overshot the 1,100 mark substantially. Already, China’s power plants are running at a very low utilisation level, only generating about 40% of their maximum capacity. There’s already an oversupply in many parts of the country, which would have been made even worse if the new plants came online.
Still, cancelling power plants once they’re under construction is a big deal. As noted above, it’s an expensive way to do things. China is looking for cleaner energy alternatives – it now has more wind and solar capacity than any other country – and also pledged, under the Paris Agreement, that its overall emissions would peak by 2030. China’s commitment on this, as a developing country, makes New Zealand’s ‘commitment’ look pretty weak by comparison.
Although it’s early days, China has certainly shifted its stance on coal, and committed to being a climate leader. Coal is in the black books not just for its greenhouse gas emissions, but also because it’s so polluting – with terrible effects on the air quality in many Chinese cities.
The Herald ran a great piece recently looking at the Australian situation:
A couple weeks ago Prime Minister Malcolm Turnbull announced that his government is planning to subsidise the construction of clean coal power stations to make electricity more secure and affordable… However, the power generation companies who Turnbull would be relying on to build these new coal powered generators appear to want nothing to do with it.
Clean coal power stations are hugely expensive to build and they need to operate for 30 years to produce a return. That comes with a political and technological risk that power companies aren’t prepared to carry… energy companies don’t want to build new power stations when there is a risk of them becoming stranded assets that don’t produce a return and no one wants to buy.
I’m appalled that the Australian government is wanting to subsidise new coal plants – and ‘clean coal’ is a very misleading term at that. Still, it seems like the Australian power companies don’t want to touch this deal. The ‘political’ risk is that at some point, maybe not too far away, some stronger climate change agreements will get signed, and those coal plants will face heavy emissions costs. The ‘technological’ risk is that renewables, solar and wind, keep getting cheaper. This could leave coal unable to compete.
Well, I think CS Energy certainly has no intention of building any coal-fired power plants, ultra-centre super-critical or not. And it would surprise me greatly if there was any more coal-fired technology was built in Australia.
I think when you look at the risk of the investment, you’re talking about $2 billion-plus investment up-front. These assets have a plant life of roughly 40 years, and so it’s a very, very big long-term bet. So given the current uncertainty, I think it would be a very courageous board that would invest in coal-fired technology in Australia.
Coal has never made up more than 10% of our power supply, and it’s become less important in recent years:
Coal, oil and gas plants all fall under the category of ‘thermal’ generation, and with a bit of effort you can convert from one to the other. As shown in the graph, NZ was no longer burning oil for electricity after the late ’70s, and most of our thermal electricity comes from gas.
More than 80% of NZ’s total electricity now comes from renewable sources, and that’s been trending upwards slowly. The government has a goal in place of getting to 90% by 2025 – hardly ambitious – and we have a good chance of getting there. Over the last few years, coal and gas plants have been closing, or running less frequently.
Huntly is the only major power plant which still uses coal. It has steam turbines, which can run on either coal or gas, but generally Huntly runs them on coal. Two of the four coal/ gas units closed, in 2012 and 2015. This dropped Huntly’s capacity from 1,450 megawatts to 950. There was talk in 2015 about closing the last two coal/ gas units – leaving Huntly as a gas-only plant, and essentially ending large-scale coal power generation in NZ – but a deal was signed in 2016 to keep them open until 2022.
The Otahuhu power station, actually in Otara, has closed and been sold as a long-term development site. The 400 megawatts of gas generation there had been built in stages from 1968, with the last stage in 2000 – it only operated (intermittently) for 15 years. The smaller Southdown power station also closed in 2015 – 114 megawatts, with part of that capacity only added in 2007.
I expect that’s as far as we get for a while. The current big question mark in NZ electricity is what happens with Tiwai Point, the aluminium smelter near Invercargill. There’s been years of talk about it potentially closing, or reducing its operations. And this single place uses a whopping 13% of NZ’s electricity, around the same as every household in Auckland combined. Even without Tiwai Point, power demand has been quite flat, rather than growing as it was up until 2007. There’s plenty of renewable generation consented and ready to build, but the power companies won’t build it until the demand and prices are there to support it. So for now, we’re stuck with what we’ve got.
The death of coal?
This is what the death of coal looks like. It’s not a sudden fall to zero worldwide coal consumption. It’s consumption turning flat after decades of growth. There are still coal power plants in almost every country, but older plants are being shut down early and not replaced. New plants aren’t being built, at least not in the developed countries – because in a future where climate change is one of the only certainties, coal is a terrible long-term investment.
And yet we don’t have globally binding climate agreements, or a clear way to determine who will pay what for their emissions. We’ve got developing countries, keen to improve their living standards and bring reliable electricity to their citizens. Coal is cheap, and getting cheaper now that developed countries are turning their backs on it. Poorer countries are likely to still find coal attractive – but for how long, and how fast will they be able to transition to other power sources?