Report: Nearly 80% of EU Coal Units Operate at a Loss

A new report from a group that studies the impact of climate change on financial markets recommends that European Union (EU) governments move to phase out coal-fired power generation completely by 2030 in order to avoid even-greater economic damage.

Carbon Tracker, a London, UK-based group supported by foundations in Europe and the U.S., on Oct. 24 released its Apocoalypse Now report. The study said European utilities could lose as much as $7.3 billion in 2019 from operations of coal-fired power plants. The group said nearly 80% of coal units in Europe are not economic, up from about 46% of units just two years ago.

Matt Gray, head of Power & Utilities for Carbon Tracker, in an email to POWERsaid, “In this report, we explain the financial implications of recent changes to EU coal power economics. In doing so, we argue EU policymakers and investors need to prepare for no hard coal or lignite generation by 2030. Data-driven solutions are offered to help ensure an orderly and just transition.”

Gray said that “EU coal generators are hemorrhaging cash because they cannot compete with cheap renewables, and this will only get worse as carbon prices rise.”

Commitments to Phase-Out Coal Generation

The group Beyond Coal Europe has said that 45% of the EU’s 154.4 GW of coal-fired generation capacity is scheduled to close by 2030. It said 13 EU member states have committed to a complete phase-out of coal generation in the next decade, though seven countries have made no commitments on coal generation.

Carbon Tracker said it analyzed the economics of every coal-fired plant in the EU. The report said Germany—which already plans to phase out coal generation by 2038—would sustain the greatest financial losses from continuing to operate coal plants. Spain, which already has announced it expects its last coal plants will close by 2030, and the Czech Republic also would sustain significant financial losses at plants operating post-2030.

The report said RWE, Germany’s second-largest electricity provider, is the utility potentially looking at the greatest losses, as much as $1.08 billion—6% of its market capitalization. It said EPH, based in Prague in the Czech Republic, could lose $681 million, and Greece’s PPC has as much as $663 million at risk.

Carbon Tracker said falling prices for renewable power, along with stricter environmental regulations and increasing prices for coal supplies, are making coal generation less economic. The group in a news release said governments will face “intractable problems if they seek to support coal in the long term because they will have to choose whether to: pass costs to the utilities and destroy shareholder value; pass costs to consumers and push bills up; or fund them from debt or taxes.”

The report’s main findings include:

  • EU hard coal generation has declined 39% between March and August 2019 compared with the same period in 2018, due to a combination of higher EU Emissions Trading Scheme (ETS) prices, lower gas prices, and competition from wind and solar.
  • Based on Carbon Tracker modeling, the group estimates 84% of lignite and 76% of hard coal generators are currently operating at a loss. It says “heavy” government subsidies would be needed to continue hard coal or lignite generation after 2030.
  • Assets that are cash-flow positive are hard coal and lignite units in Poland, Italy, the Czech Republic, and Slovenia. Those units benefit from comparatively high wholesale power prices, as well as a small amount of capacity in Germany and Netherlands that have higher unit efficiencies.
  • If EU governments chose to support coal post-2030, “operators will have to choose among destroying shareholder value, depleting fiscal resources, or undermining economic competitiveness.”

‘Securitization Regulation’

Gray said his group offers three analytical solutions “to help ensure a swift, orderly, and just transition off coal.”

  • Securitization regulation to incentivize early retirements by exploiting the difference in the cost of capital available to governments and companies.
  • Geospatial artificial intelligence to maximize the value of variable renewable energy and help policymakers focus on which coal units could be replaced locally at a saving.
  • Open-source electricity system planning to transparently prove that coal will become a net-liability to the end consumer and enable a transition from coal to carbon neutral technologies.

The report noted that “The economics of coal generation in the EU are becoming untenable for operators without significant subsidies from the state. Phasing out coal in a timely, cheap and just way will require considerable foresight.”

Darrell Proctor is a POWER associate editor (@DarrellProctor1, @POWERmagazine).