The recent shake-up in natural gas markets and their ensuing impact on energy security, and geopolitical tension, dramatically altered the trajectory of global coal-fired generation, sending it soaring to record levels in 2022. While the outlook for coal power remains grim, anyone interested in climate and energy should pay attention to these dynamics, said the International Energy Agency (IEA) in its December 2022–released Coal 2022 report.
According to the annual trend analysis of coal demand, supply, trade, costs, and prices, coal generation soared by 8% in 2021, driven by a general post-pandemic electricity demand rebound of 5.2%, but also in response to low hydropower generation and weak wind conditions in some regions. In 2022, though power demand growth slowed to about 3%, a natural gas shortage that resulted in higher prices effectively kicked off a return to coal.
Europe’s Coal Reliance Retriggered
This was prominent in the European Union (EU), where natural gas prices surged due to Russian gas pipeline supply interruptions, and wind and solar inadequately offset lower hydropower and nuclear power output. Hard hit by the crisis, several countries in the EU—including Germany, Finland, France, the Netherlands, Spain, Italy, Denmark, Greece, the Czech Republic, Hungary, and Austria—allowed coal plants that had closed or been mothballed to re-enter the market, or lifted caps on coal generation.
Germany, which moved swiftly to dissipate its reliance on Russia for 55% of its gas supplies, notably created a “gas replacement reserve” comprising 11.6 GW of coal generation. That includes 1.9 GW of lignite and 4.3 GW of hard coal plants that are allowed to return to the market until April 2024. Germany also notably postponed the decommissioning of 2.6 GW of hard coal and 1.2 GW of lignite capacity. The measure is notable given Germany’s plans to exit coal power by 2030 or earlier. Under the coal exit law, an estimated 13.9 GW of lignite or hard coal-fired plants were slated to be shuttered by the end of 2022.
Germany’s “significant reversal” constitutes a major increase in coal consumption by the EU’s power sector. The IEA’s preliminary projections for 2022 suggest coal consumption for power in the region would increase up to 9%—or 31 million tonnes (MT)—to a total of 377 MT in 2022.
The agency also projected optimistic economics for coal power over the near term. “The current forward markets indicate that the marginal costs of coal-fired power plants will be far below those of gas-fired power plants in the next few years,” it suggested. “This would only change in 2025 when forward gas prices are low enough to place efficient gas-fired power plants ahead of inefficient coal-fired ones. However, lignite-fired power plants are expected to remain very competitive until 2025.”
1. The Hunutlu thermal power plant in Sugözü village, Yumurtalık district, Adana, Türkiye, is a 1.32-GW twin-unit ultrasupercritical coal-fired power plant that came online in September 2022. The $1.7 billion project was a joint venture between Chinese firm Shanghai Electric Power, AVIC International Project Engineering, and two Turkish firms. Courtesy: EMBA Power
However, the agency still expects that EU countries will continue moving forward with plans to phase out coal generation from 2024 onward. “Germany, in particular, plans to reduce its power plant fleet by 6.2 GW of hard coal and 2.9 GW of lignite power plant capacity from 2021 to 2025,” the IEA said. “In view of a firm ramp-up of electricity production from renewables and a recovery in French nuclear power, our models indicate that Germany, the EU’s largest coal-fired power generator, will turn from a net exporter of electricity to a net importer in this period,” it said. For now, the IEA expects only one European country—Poland—will likely keep its coal generation levels firm until 2025. However, the coal demand picture continues to develop, it notes. Türkiye (as Turkey is officially now known), for example, in September 2022 began operating the new 1.3 GW Hunutlu coal power plant (Figure 1).
Coal Generation Also Resurged in China and India
Coal generation’s surge in China and India, where coal has historically dominated power profiles, also surged during 2022. While gas power comprises only a fraction of these countries’ power generation, the surge is attributed to lower renewables output. China marked a 15% year-on-year surge in coal power in August 2022, as hydropower output faltered during a heat wave. The IEA suggested that China may double down on coal power despite a recent slowdown. In 2021, it commissioned an estimated 26 GW of new coal-fired power plants and began construction on 33 GW (the most since 2016). Though capacity additions slowed to 7.5 GW in the first six months of 2022, coal may be slated to serve as a “backbone” for China’s energy security, it said.
“Following the power shortages in 2020 and 2021 and the drought in 2022, national and local governments intend to further issue more permits for new coal power plants, with a potential of up to 270 GW coal-fired power plant capacity by 2025,” the agency noted. “If these plans are realized, the additional capacity would total more than any other country in the world currently has installed.”
China already accounts for about 55% of the global coal power capacity under development, the IEA noted. The IEA also said, however, that “[I]t is unlikely that the additional coal-fired power plants will be operated at full capacity, as they are largely intended to ensure energy security and are therefore not expected to directly increase coal consumption in China’s power sector.” That’s why the IEA projects a moderate 2.3% growth per year (by about 5,731 TWh) for coal power in China by 2025.
India, which today relies on coal power for 73% of its power, on the other hand, could see much more considerable coal power growth. “Coal-fired power plants make up 50% of the overall installed capacity of 404 GW connected to grids, with another 25 GW currently under construction,” the IEA said. While India is targeting a share of 50% renewables in its power mix by 2030, and it has required 81 coal plants to reduce their power generation by a total 58 TWh over the next four years, none of its 172 grid-connected coal power plants are slated for retirement. “We expect India’s coal demand to rise steadily,” the IEA said, predicting use of about 1,220 Mt in 2025, with 8% metallurgical coal and 92% thermal coal.
In Japan, coal generation fell by 1.1% during 2021, but the IEA projected coal demand would rise by 1.8% in 2022, owing to higher gas prices. Over the near term, Japan’s coal generation will likely also grow, albeit moderately, the agency said. “Thermal capacity will increase by about 1.03 GW in total, of which coal-fired capacity will account for a net gain of about 0.7 GW. Forward prices indicate that coal will remain competitive with spot gas for power generation through 2025.” Whether Japan follows through with its intentions to extend the lifetime of four of its 33 available nuclear power plants to 60 years in response to higher electricity prices and efforts to reinforce energy security may determine coal power’s future trajectory for the country, it suggested.
And in South Korea, where like Japan, utilities procure liquefied natural gas (LNG) through long-term contracts, “opportunity costs are high and—at the margin—coal remains cost-competitive with gas.” In 2022, South Korea suspended generation caps and temporary coal plant shutdowns to substitute for expensive gas generation. Looking ahead, while South Korea recently started the 1.4 GW Shin Hanul 1 nuclear reactor, it will also start the ultrasupercritical coal-fired 2-GW Anin power station in Gangwon Province. “By 2025, however, Korean coal-fired power generation will decline somewhat and reach about the same level as in 2022, despite the commissioning of another 2-GW coal-fired capacity (Samcheok power station), as old units are decommissioned and power generation from renewables increases,” the IEA said.
Meanwhile, coal generation in Southeast Asia is slated to rise, particularly in Indonesia and Vietnam. Indonesia in 2022 started up Adaro Energy’s new 2-GW Batang coal power plant, and Bukit Asam’s 1.32-GW Sumel 8, while Vietnam opened the 1.2-GW Ngho Son 2 power plant. While both Indonesia and Vietnam have pledged to pause coal power development, the agency noted that several new coal plants could open over the near term. “The importance of coal-fired generation, however, is about to increase in the foreseeable future as there are still several coal-fired power plants under construction in Indonesia, and in Viet Nam the 1.2 GW Vung Ang 2 is expected to begin generation in 2025,” the IEA noted.