Building new wind and solar plants will soon be cheaper in every major market across the globe than running existing coal-fired power stations, according to a new report that raises fresh doubt about the medium-term viability of Australia’s $26bn thermal coal export industry.
While some countries are moving faster than others, the analysis by the Carbon Tracker Initiative, a climate finance thinktank, found renewable power was a cheaper option than building new coal plants in all large markets including Australia, and was expected to cost less than electricity from existing coal plants by 2030 at the latest.
Solar photovoltaics and wind energy were already cheaper than electricity from about 60% of coal stations, including about 70% of China’s coal fleet and half of Australia’s plants, it said.
In Japan, where Australia sells nearly half its exported thermal coal, wind power was found to cost less than new coal plants and was expected to be cheaper than existing coal by 2028. Solar power in Japan was forecast to be a better option than new coal by 2023 and existing coal by 2026.
The story was similar in China and South Korea, which each take about 15% of Australia’s exported thermal coal. In China, wind was already cheaper than any coal power, and solar electricity was forecast to on average cost less than existing coal later this year. Renewable energy in South Korea was expected to be cheaper than existing coal within two years.
The report acknowledged this trend did not necessarily mean coal power would be pushed from the market within a decade. It said some governments were effectively incentivising or underwriting new coal power through regulatory programs that either directly subsidised coal operators or passed the higher cost on to consumers.
But the group found that coal power would struggle if markets were priced fairly. It called on governments to block new coal projects and phase our existing coal plants, in part by changing regulations to allow renewable energy to compete on a level playing field.
Carbon Tracker’s Matt Gray, a co-author of the report, said proposed coal investments risked becoming stranded assets that locked in increasingly expensive power for decades. The analysis found that developers risked wasting more than $600bn if all mooted coal-fired plants were built.
“The market is driving the low-carbon energy transition but governments aren’t listening,” Gray said. “It makes economic sense for governments to cancel new coal projects immediately and progressively phase out existing plants.”
Christiana Figueres, a former head UN climate chief who oversaw negotiations on the Paris agreement and is in Australian on a book tour, said demand for coal had been diminishing, having been overtaken by cheaper gas-fired power in the US and outpriced by solar in India. She said the price of solar and onshore and offshore wind were falling consistently.
“No one should not assume that the demand for thermal coal from Australia is actually elastic. It’s not,” Figueres said.
Australia is the world’s second largest thermal coal exporter after Indonesia, and is the biggest trader in metallurgical coal, which is used in steel making.
The export value of both forms of coal dropped notably last year. The spot price of thermal coal slumped more than a third from US$100.73 to US$66.20, its biggest fall in more than a decade.
Before the coronavirus outbreak, the government’s latest resources and quarterly energy report estimated the declining price would cut earnings from thermal coal exports from a record A$26bn in 2018-19 to A$20.6bn this financial year.
In terms of coal use, the International Energy Agency found it declined last year, but forecast a slight increase over the next five years due to rising demand from India.
A more detailed analysis by several thinktanks found that coal-fired electricity fell about 3% in 2019, the biggest drop on record after more than four decades of near-uninterrupted growth in which coal power has been a primary driver of the climate crisis. China’s use of coal plants continued to climb while generation in the US and Europe fell by 16% and nearly a quarter.
Within Australia, black and brown coal provide about two-thirds of the electricity used in the five eastern states, but this is expected to fall as old plants continue to close. According to federal government projections, renewable energy is expected to meet nearly 50% of national demand by 2030.
In 2018 the UN’s Intergovernmental Panel on Climate Change examined how rapidly global coal power needed to be phased out to give the world a chance of limiting global warming to 1.5C , a goal referenced in the Paris agreement.
It found this would require a cut of 59% to 78% below 2010 levels by 2030, before declining to zero.