Is The Coal Collapse Imminent?

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The news on reductions in coal-burning in Europe is getting better all the time. Coal generation in the European Union (EU) fell by 19% in the first half of 2019, with decreases in almost every coal-burning country. The coal collapse, long forecast, is finally beginning to take shape.

Half of coal’s fall was replaced by wind and solar, and half was replaced by switching to fossil gas. If this trend continues for the rest of the year, it will lessen CO2 emissions by 65 million tons compared to last year and shrink EU’s greenhouse gas (GHG) by 1.5%.

Coal generation already had declined 30% from 2012 to 2018.

Let it be said, however, that even if these plunges continue in 2019, coal generation is still likely to account for 12% of the EU’s 2019 GHG emissions.

Since 2015, Sandbag: Smarter Climate Policies, a group which influences leaders to deliver carbon pricing and emission reductions, has published an update on its series, “Europe’s Power Transition.” Now they’ve added a 6-month mini-review to help explain the extent and reasoning of the huge fall in Europe’s coal generation in 2019. Sandbag curated 20 gigabytes of power operator data from ENTSO-E, and then condensed the most important data to a handy 2MB excel sheet.

Titled “The Great Coal Collapse of 2019,” the report has some interesting findings. Here are highlights.

• All western European countries saw big percentage falls, from 22% in Germany to 79% in Ireland.
• Germany saw by far the biggest coal fall in absolute terms.
• The falls in eastern European countries were much smaller due to near-zero deployment of wind and solar.

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Phil MacDonald, COO of Sandbag, offered this exclusive comment for CleanTechnica:

“The decline in European coal power in the first half of 2019 is unprecedented. Accelerating wind and solar deployment – plus the spike in the EU carbon price – has destroyed coal utility profitability. If these trends continue, and we expect they will, we’d expect to see western Europe coal-free well before 2030.

However, central and eastern European countries have been slower to build renewables, and so we’re seeing smaller declines in coal there. We’d need to see a big step up in wind and solar deployment for countries like Romania, Greece, and Poland to follow the same track towards coal phase-out.”

Carbon Pricing at the Core of the Coal Collapse

Carbon pricing is one cost-effective way to reduce greenhouse gas emissions, as it gives a clear economic incentive to reduce emissions at a cost below the carbon price. Carbon price, depending on its level, helps drive investment in low carbon technologies and power generation.

Carbon pricing broadly takes two forms: a carbon tax and a cap-and-trade approach where emitters have to buy permits to be able to emit. Hybrids or mixtures of these approaches are often used in practice.

In Europe there is a mixture of carbon pricing measures in place or being developed:

• the EU Emissions Trading System (ETS)
• a Europe-wide cap-and-trade scheme
• national carbon prices, usually in the form of a tax, in a number of countries, including the France, the UK, and Scandinavian countries

Wind & Solar is Replacing Coal

Half of Europe’s fall in coal was due to increased wind and solar generation. The rise in wind and solar of 32 TWh in the first half of 2019 compared to 2018 was slightly above average for this decade, which the report indicates is no surprise, as there were record wind installations and a pick-up in solar installations.

Of the 32T Wh rise in wind and solar generation, four-fifths was wind and only one fifth was solar. Solar continues to make a small contribution to falling coal generation but is far off its potential.

Biomass generation was unchanged in 2019, as policy “correctly shifts away from biomass subsidies,” so wind and solar are having to work harder to keep up the overall growth of sum renewables.

The countries that built the most wind and solar capacity saw the biggest fall in coal generation. 95% of the overall wind and solar installed in 2018 was in western European countries, which is where the biggest falls in coal generation were. Germany saw the biggest deployment of renewables and the biggest absolute fall in coal generation.

The countries that built the least wind and solar capacity saw the smallest fall in coal generation. Only 5% of wind and solar installed in 2018 was in eastern countries. The lignite-burning countries did particularly badly.

• Out of 17,000 MW installed across Europe last year, Poland installed just 39 MW, Czechia 26MW, Romania 5MW and Bulgaria 3MW.
• This is reflected in the their much-smaller falls in coal generation.
• Lignite generation in Czechia and Bulgaria actually increased slightly.

Fossil Gas Replaces Coal as Carbon Pricing Begins to Work

Half of Europe’s fall in coal was due to a rise in fossil gas as a short-term replacement for coal to meet the EU’s carbon pricing. The largest pick-ups in gas were in Germany, Spain, Italy, and France.

The UK was not impacted much by the higher EU carbon pricing, since the top-up UK carbon tax had already ensured there was full coal-gas switching in place. It is unlikely the coal-gas switch will lead to more gas plants being built, though, as only one gas plant came online in the whole of Europe in 2018: Plock in Poland.

In 2018, a high gas price and low carbon price meant hard coal ran before gas, but the economics switched at the end of 2018 when gas prices plummeted and carbon prices rose.

Lignite plant profitability disintegrated in 2019. The rise in carbon price has worsened those economics dramatically. Because lignite plants have large fixed costs to cover, not only are the lignite plants more expensive to maintain than hard coal plants, but their adjacent mines also have huge fixed costs. Sandbag estimates that very few lignite plants – if any – will have covered all their fixed costs in the first half of 2019, perhaps for the first time ever.

That means in the longer term the impact of carbon pricing lignite may be more impacted than hard coal. Governments and investors now have to decide how long they will continue to support these loss-making utilities.

Coal Plant Closures

Many EU countries proclaimed over the past few years that they would be phasing out coal plants, yet only 3% of coal plants closed in 2018. Most of these closures were limited to the UK and Germany.

That means the rate of closures elsewhere in Europe was near-zero.

The only mandated plants closed were German lignite units at Niederaussem and Jaenschwalde, which led to a large reduction of 4 TWh of inefficient lignite generation. The remaining plants  closed due to what many countries broadly complained was “poor economics.”

Hey, doesn’t government policy play a critical part in power plant economics? For example, all the following are likely to have played a role in the UK’s Eggborough’s plant closure in 2018:

• Knowing retrofit isn’t a viable option because of the UK’s 2025 coal phase-out date
• Reduced running due to more wind and solar
• A higher carbon price
• Tighter power plant emissions standards
• Lower capacity payments as new batteries outbid coal in the capacity mechanism
• Outlook

Realistically, 2019’s coal collapse will not become the new norm unless there is a strong policy push at the highest levels.

What’s Policy Got to Do with It?

Coal-gas switching has most likely reached its peak. 2019 has likely already seen full coal-gas switching for hard coal, so the economics could only reverse back to more coal again. Sandbag has several recommendations for policy makers.

Governments, they say, need to tilt the markets away from coal by tightening air pollution limits, embracing higher carbon pricing, and refusing to subsidize coal through capacity payments. Unsustainable coal-to-biomass conversions continue to be a threat in the future; inefficient coal plants need to be closed rather than converted to burning trees.

Governments must encourage investment not only into wind and solar but also electricity storage, interconnectors and demand response, and engage grid operators to speed the phase-out of coal.

Wind and solar deployment, Sandbag argues, is not fast enough in key lignite countries such as Poland, Czechia, Romania, Bulgaria, and Greece. These countries will not see falling generation unless they speed up wind and solar deployment.

Additionally, as electricity consumption begins to rise from electric cars and other electrification, renewables will need to be deployed at double-speed in all countries, to ensure that coal falls at the same historical rate.

Coal plants need to close faster. Only 3% of coal plants closed in 2018. However, Sandbag sees big progress being made behind the scenes in many countries in planning for a coal phase-out. All countries in western Europe have a date by which to phase-out coal, and this is needed also for eastern countries.

Sandbag calls for many additional preparations. These include finding a way for all stakeholders to work together to ensure a just transition and a speedy transition. Moreover, if compensation must be paid to close coal plants it should recognize that these coal plants are unlikely to be profitable today, and likely to be even more-so tomorrow.

What is Sandbag?

Sandbag’s focus is on:

• exposing the shortcomings of the EU ETS, which continues to be affected by a large ongoing surplus of allowances
• advocacy related to the development and improvement of national carbon pricing, particularly focusing on the UK, France, and Germany
• advocacy related to the need for a sufficient carbon price to drive coal phase out in Europe

Sandbag’s recent reports have looked at:

• rebasing the cap to reflect actual emissions at the end of each phase
• retirement of allowances from the Market Stability Reserve (MSR)
• how to focus assistance to industry to prevent carbon leakage on those that need it most
• the value of additional actions beyond carbon pricing in reducing emissions

They work to influence the European Commission, European Parliament, key member states, and other major stakeholders and to raise public awareness of and engagement in the policy making process.