The Hazelwood power station in Australia’s state of Victoria started generating electricity 52 years ago. The stark symbol of an era when coal was king, Hazelwood was one of Australia’s dirtiest: its fuel was the Latrobe valley’s brown coal, a bigger polluter than the black sort. The station was due finally to close on March 31st. Days earlier, chimney stacks were demolished at Munmorah, a black-coal station north of Sydney, already closed. Australia has shut ten coal-fired power stations over the past seven years, yet coal still generates about three-quarters of its electricity.
This fits a pattern across much of Asia, which accounts for two-thirds of the world’s coal demand. The biggest economies besides Japan, which hopes to replace nuclear with “clean” coal, are either closing down old plants or rethinking plans to build new ones. This is casting a deepening cloud over the coal industry.
Two reasons explain the looming overcapacity in countries ranging from China and India to Australia (South-East Asia remains hooked on coal). Firstly, electricity demand is stagnant, falling or growing less strongly than expected, which has put considerable financial strain on power plants burning coal. Second, countries are seeking alternative sources of power, especially renewables, to reduce pollution and curb carbon emissions. As the cost of renewables becomes more competitive with coal, it further blackens its future.
Coal’s first headache, the falling energy intensity of economic growth (ie, less energy is needed to produce the same levels of growth), is a common feature in the rich world, as economies switch from manufacturing towards services, use more LED lighting and make appliances such as refrigerators and air-conditioners more energy-efficient. According to the International Energy Agency, a forecaster, Australia and Japan have among the rich world’s lowest levels of energy intensity.
China and India are going the same way. Primary energy demand in China declined in 2015, the first fall in almost 20 years, largely reflecting a shift away from heavy manufacturing, as well as energy-efficiency gains. The same year, China’s coal demand plummeted by about 4%.
For similar reasons, India’s growth in electricity demand, at around 5% a year, lags behind that of GDP as a whole, at about 7%. In both India and China, authorities have overestimated the growth in electricity consumption, procuring coal-fired power that is not used by the grid. The result is that coal plants in both countries are operating far below their potential capacity, says Tim Buckley of the Institute for Energy Economics and Financial Analysis, an environmental think-tank (see chart).
Such wastage has deterred investment in new coal-fired plants.
“Coal-based generation is becoming non-viable,” says E.A.S. Sarma, a former power secretary in the Indian government.
That has big costs. About 240m Indians lack access to electricity, and as Arunabha Ghosh, head of the Council on Energy, Environment and Water, an Indian think-tank, points out, Indians’ power consumption is less than a third of the global average. He notes that part of the blame for sluggish demand is the dire financial state of India’s electricity-distribution companies, which lose money on every unit of power they supply, because of transmission losses and customers’ failure to pay.
The government of Narendra Modi, the prime minister, is trying to fix the distribution companies’ problems. But in the meantime renewable energy prices are falling fast, making the investment case for coal even bleaker. An auction in February to provide 0.75GW of solar capacity in Madhya Pradesh, a state in central India, saw bids as low as 2.97 rupees (4.6 cents) per kilowatt hour, a third below the previous record in 2016. Developers say new coal-fired power plants would struggle to compete with that. The auction was particularly successful because the “solar park” is on land with a grid connection, and offers a more robust payment structure than in previous auctions. Mr Modi will need dozens more such parks to meet his goal of 100GW of solar capacity by 2022. This in turn will need a huge amount of financing. But there is no shortage of bidders.
Meanwhile, the pace of solar installations in China is likely to slow, following a record 34GW last year, because the cost reductions are being matched by a drop in the subsidy in the feed-in-tariff that China pays to solar-power generators. Nonetheless, Bloomberg New Energy Finance, a consultancy, estimates that from 2016 the amount of new renewable-energy capacity in China is likely to have started exceeding new fossil-fuel plants. It expects the same to happen in India from 2018.