Back On A Downward Spiral

For instance, the European coal industry is back on a clear phase-out path after a couple of anomalous growth years due to the energy crisis. The region is the front runner of a global trend where coal is likely to have now peaked and is in structural decline due to policy and economics. Overall, Rystad Energy expects coal generation to drop by nearly half in Europe in the next five years; from 356 TWh in 2023 to 185 TWh in 2028. Driven by efforts to reduce emissions and a push for a cleaner electricity system, coal generation in the EU has been falling over the past decade, from 743 TWh in 2012 to around 350 TWh in 2020. But, as commercial activities picked up again after the 2020 pandemic, electricity demand spiked at a time when renewable generation was lagging and gas prices increased, which made coal a cost-competitive fossil fuel in the region – and its usage surged. This trend was exacerbated in 2022 as energy prices spiralled amid the Russia-Ukraine war.

However, Europe’s electricity demand dropped significantly last year due to energy-saving initiatives which, combined with higher renewable energy yields and better gas fundamentals, reduced the need for coal. At present, while overall power demand is likely to recover moving forward, stricter policies and unfriendly economics make a coal recovery highly unlikely.

European coal production fell to a multi-decade low in 2023

With power demand faltering, coal production in the EU saw a sharp decline in 2023 after having an irregular upward trend for a couple of years – rising 10% year-on-year in 2021 and 5% year-on-year in 2022. The low-CV brown coal (including lignite) took the brunt of the fall since almost all of it is used in the power sector, which itself had a lean year. The fall in high-CV hard coal, which includes coking coal as well, was much gentler.

In 2023, the EU produced only 224 million t of lignite, 24% (70 million t) less year-on-year, primarily due to a drop in overall coal demand from the region’s power sector. For instance, lignite production in Germany fell by 30 million t in 2023 compared to 2022, with production in Poland and the Czech Republic down by 16 million t and 5 million t, respectively. Yet, Europe remains one of the largest consumers of lignite, almost all of which is produced domestically. After closing all its hard coal mines in 2018 due to high costs, Germany at present only produces lignite, while Poland and the Czech Republic continue to produce hard coal and lignite.

All three countries are expected to continue producing coal, albeit at increasingly lower volumes, with Poland likely to see the slowest rate of decrease. Coal generation is responsible for meeting 61% of Poland’s electricity needs and plays an important role in maintaining energy supply security. In addition, while Poland’s new government – which took power in October 2023 – is looking to put in place a consolidated coal phase-out plan, the previous government agreed with trade unions that coal mining would not be phased out until 2049. Overturning this promise could prove challenging for the new administration. Poland produced a total 40 million t of lignite in 2023, and Rystad Energy is expecting production to fall below 30 million t by 2030.

Enjoyed what you've read so far? Read the rest of the article and Issue 1 of World Coal by registering today for free!

Read the article online at: https://www.worldcoal.com/coal/24042024/back-on-a-downward-spiral/