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    From the Editor: The gas-for-coal conundrum [Gas in Transition]


There is an expectation that the US will jump straight from coal to renewables over the next decade, but this ignores the critical role cheap natural gas has played in managing US coal decline. [Gas in Transition, Volume 1, Issue 2]

by: Ross McCracken

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From the Editor: The gas-for-coal conundrum [Gas in Transition]

There is little question that countries long dependent on coal for a large proportion of their electricity generation face a greater challenge than others in meeting climate change targets. This is true for both developed and developing nations and usually reflects the use of domestic rather than imported coal as a historically cheap and readily available energy source.

Domestic coal industries often support whole communities, who face a huge readjustment as their local economies lose the mainstay of their existence. As such, it should be no surprise that there is resistance to change. Governments need to find funds to offer coal mining communities a positive role in the energy transition, one which promises re-training and new high quality employment.

Managing coal’s decline

In the US, coal production and consumption has dropped dramatically in recent years. From just over 1bn short tons (st) in 2014, US coal production fell to 706mn st in 2019. Consumption dropped from 918mn st to just 586mn st, led largely by reductions in the electricity sector, where coal use fell from 851mn st to 539mn st.

However, this was the result of economic factors just as much as policy designed to reduce greenhouse gas emissions (GHG) – the low price of US natural gas, a result of the shale boom, and a combination of federal support for renewable energy via tax credits, state level incentives and the downward cost trajectory of wind and solar power.

Gas, onshore wind and solar emerged as economic competitors at a time when the US coal fleet was old, leading to a wave of coal plant retirements, despite the interregnum in climate policy leadership represented by the Trump administration. The retirements reached a peak in 2019 of about 14 GW, followed by a further 9 GW last year and a forecast 8 GW over 2021 and 2022 combined.

Coal to renewables jump

According to environmental organisation the Institute for Energy Economics and Financial Analysis (IEEFA), the number of US planned coal retirements in the period to 2030 has doubled in the past year from 37.4 GW to at least 75.5 GW.

IEEFA attributes this to the wave of new renewable capacity that came online in 2020, and further large construction commitments over the next decade. It records 14 GW of utility-scale solar, 16.9 GW of wind and 1 GW of battery storage being connected to US grids in 2020. And this is before the country has embarked on meeting the Biden administration’s target for 30 GW of offshore wind by 2030.

By 2030, IEEFA calculates that 175 GW of US coal-fired generation will have closed, representing 55% of the capacity that existed at its peak in 2011.

This year EIA data shows new wind and solar capacity additions making up an incredible 70% of all new capacity with another 11% coming from batteries. Natural gas’ share of new capacity is just 16%. IEEFA sees this as a direct jump from coal to renewables.

However, this understates the amount of new US gas-fired plants built in recent years, which has allowed gas-to-coal switching and reduced GHGs as a result. Cheap gas availability and gas-fired generation, which hit a record 1,701 TWh in 2019, 70% higher than in 2011, has been critical in managing coal-fired generation’s decline.

The data speaks for itself: between 2011 and 2019, US gas-fired electricity generation increased by 611 TWh, while coal-fired generation fell by 833 TWh. Renewable energy generation rose by 288 TWh.

Coal in Asia

The problem is much bigger in China and India, both of which use more coal than the US, China vastly so as it accounts for about two-thirds of global coal consumption. All of the world’s largest three coal users have large domestic coal industries in common, but key differences between the US on the one hand and India and China in the other is the young age of the latter countries’ coal fleets, a lack of domestic gas and higher rates of electricity demand growth.

Neither India nor China so far use huge amounts of gas in power generation. Instead, gas is used primarily for city gas consumption and industrial use. As the marginal unit of gas is imported LNG, gas for power generation is a relatively expensive option in both countries. And, as they both have young coal fleets, resistance to closures will be strong as companies seek to protect operational assets.

Just as in the US, higher gas use for a period is necessary to support coal’s decline while renewable energy capacity grows sufficiently large to meet the targets of the Paris Agreement on Climate Change. In all three of the big coal consuming countries, carbon pricing and clear coal phase out policies, as in the EU, would help tilt the playing field in LNG’s favour by providing more of an economic incentive to use the cleaner burning fuel. The alternative is that the majority of India and China’s coal plants could remain operational for decades.