Reports are emerging detailing the difficulty in which the coal industry will face as it recovers post-pandemic as renewable energy proves itself the safer investment.
The news comes via a report from The Guardian, and states that “even before the pandemic, the industry was under pressure due to heightened climate activism, divestment campaigns and cheap alternatives. The lockdown has exposed its frailties even further, wiping billions from the market valuations of the world’s biggest coal miners.”
Statistics from the Energy Information Agency (EIA) show that since its peak in 2008, the US’ consumption of coal has dropped just under 40% - the lowest levels we’ve seen in more than 40 years.
The report goes on to detail that with smaller demand amidst the coronavirus pandemic, a number of utility providers around the globe have moved to reduce the rate of coal-fired power in their energy chain, due to the fact that it remains more expensive than gas, wind and solar power production. It quotes Michael Lewis, head of climate change investment research at BNP Paribas, who said that “the economics of coal were already under structural pressure before the pandemic… coming out of it, these pressures will still be there - but now compounded by the impact of the pandemic,” he said.
“The public health benefits of cleaner air will be front and centre after weeks of lockdown that have promoted blue skies and clear air in Asia’s megalopolises,” he continued to explain. “This pressure from the finance sector will only accelerate going forward, pushing the cost of capital for coal projects even higher.”
BNP Paribas has announced it would remove coal from its investment books by 2030, a similar move to what we reported on last year when $47 trillion worth of banks and investment firms agreed to adopt a set of “responsible banking” principles that would take environmental considerations more seriously with their future investments. The world’s largest sovereign wealth fund - the Norweigan fund - last week moved to remove a number of large energy and coal mining companies from its books.
Larry Fink, the CEO of the world’s largest private asset management group said previously that the world needed a “fundamental reshaping of finance,” and that sustainability was the key to the future of finance, as well as Standard Chartered and JP Morgan Chase who have written off a number of energy and coal companies as bad investments.
The European Union has reduced its coal consumption by a staggering two-thirds, taking it to three-decade record lows. In addition, the US Energy Information Administration has released projections that the U.S. is set to produce more power from its renewable sources of energy rather than coal for the first time in its history. Germany has already announced plans to phase out coal power from its electricity generation chain by the end of 2038, however, these plans may well be fast-tracked if coal’s utilisation rate continues to drop and costs remain higher than their renewable counterparts. The U.K. has recorded weeks without any coal-fired electricity generation entering its energy system.
Industry experts estimate that coal will represent a measly 10% of the entire electricity generation for the U.S., down from around half of production ten-years ago. Despite election promises from Donald Trump, the industry’s apparent demise has been impossible to stem, with consumption dropping 13% year-on-year, workers losing coal jobs en masse, and plants closing at the fastest rate seen since 1954.
In respect to China, the world’s largest consumer of coal - as well as the world’s largest financier of coal projects and power plants in Asia and Africa. Carlos Fernandez Alvarez, lead coal analysts with the International Energy Agency has said that “COVID-19 has made clear that China and India have built more than they need.”
“Even before the crisis, they had overcapacity. Now with lower demand, you can see everything is a mess,” Alvarez said. “We have to look at this structurally. If there is high energy demand again in the future, it will probably be coal that picks up the slack because it is the marginal supplier.”
In July of 2019, we published a report detailing the possible demise of coal in the US market. In that report, Jeff McDermott, managing partner of Greentech Capital Advisors said that “coal has no technology path… it’s got nowhere to go but extinction.”
“Renewables are going to get cheaper and cheaper. We’re not done,” he added.
Just a few weeks before, we published another report detailing tumbling investments into the coal industry, with the International Energy Agency providing evidence of a three-quarter drop in the number of investments into coal-fired power plants. We’ve also published reports on estimates that half of the world’s coal plants will be unprofitable by the end of the year.
Earlier this year, non-profit think-tank Carbon Tracker warned that “coal developers risk wasting more than $600 billion because it is already cheaper to generate electricity from renewables than from new coal plants in all major markets.” If you’re unconvinced, consider the fossil fuel giants like Shell who has already moved to diversify their energy portfolios with massive investments into renewable energy like wind and solar farms.