The IEA has said that the road to net zero by 2050 is “narrow but still achievable,” with a key requirement being no more investment in new coal projects.
The agency said that “from today” only no new investment in all fossil fuel supply projects, and no further final investment decisions (FIDs) for new unabated coal plants, would enable the world to limit global warming to 1.5 degrees.
Indeed, the agency warned a total coal phase-out in the power generation sector would be needed by 2040, with an earlier target date of 2030 for advanced economies.
In terms of coal demand, this net-zero target would see global coal demand fall by 90% from 5.25bn tonnes of coal equivalent in 2020 to 2.5bn tonnes in 2030 and to less than 600mn tonnes, an average annual decline of 7% each year from 2020 to 2050.
In other words, coal’s share of total energy supply would have to fall from 26% today to 4% by 2050, of which 1% would be unabated coal and 3% would be coal with carbon capture and underground storage (CCUS).
Put simply, any new investment in coal would be a major risk, as demand is set to plummet in order to meet the 2050 net-zero targets.
Meanwhile, global investment in fossil fuel supply should fall from $575bn on average over the past five years to $110bn in 2050. Upstream fossil fuel investment should be restricted to maintaining production at existing oil and natural gas fields.
Tussle between HC and renewables
The existing energy lobby is not happy about giving up their crown when there is still so much hydrocarbon fuel still in the ground. Countries like Russia are ramping up production of things like coal to be able to cash in on their mineral wealth while there are still buyers. Ironically Russia is planning to significantly increase its coal production in the next few years because in 20 years' time there will be no buyers left, the government says.
Likewise, Russia's Gazprom is also investing heavily in production, and forecasts gas demand will grow, contrary to a world trend for an energy transition from fossil fuels to the employment of environment-friendly renewable sources of energy.
Gazprom deputy chief executive Oleg Aksyutin told a web briefing that the corporate was still considering a carbon-neutrality scenario as a part of its 2050 low-carbon development strategy. The plan is to finish work on the strategy by May 2022.
Russian leaders and senior management have consistently described natural gas as a climate-friendly energy source, despite the fact that it is largely made up of methane and is not carbon-free. According to Aksyutin, natural gas is expected to account for nearly 40% of Russia's additional electricity production in 2020-2040, compared with 34% from renewables.
Gazprom’s presentation revealed that combined gas demand in Europe and China, the company’s major supply markets, is forecast to reach nearly 1 trillion cubic metres per year by 2030, up from 865bn cubic metres in 2020.
The dirtiest power producers in Europe are Ukraine, Turkey and the Western Balkans, who continue to make extensive use of coal-fuelled power stations to produce the electricity they need, as it remains the cheapest option for these poorer countries.
At the same time, EU countries like Germany and Poland are also among the worst for NOx emissions, a GHG that is as bad as CO2 emissions, according to the Ember Analytical Centre.
"When coal is burned for generating electricity, pollutants are released into the air which pose a threat to human health, and are responsible for high numbers of premature deaths. With pollutants sometimes travelling thousands of kilometres, air pollution from coal power is a problem for the whole of Europe, no matter the source," a recent report by the Ember Analytical Centre says.
Burning coal produces several dangerous gases in addition to the global-warming CO2.
Sulphur dioxide (SO2) is another GHG released from burning coal that amongst other things causes “acid rain” as the SO2 reacts with the water in the atmosphere to make sulphuric acid that can devastate the surrounding flora.
In high concentrations it also directly affects the health of local residents through causing a life-threatening accumulation of fluid in the lungs. Even a single exposure to a high concentration can cause a long-lasting condition such as asthma.
In the region the top 10 SO2 emitters can be found in three coal plants each from Turkey and Serbia, two from Bosnia, and one each Ukraine and North Macedonia.
Emissions of these plants in the top ten account for 44% of total SO2 emissions in Europe from coal power.
Among the thirty most SO2 polluting coal power plants, there are 12 from Ukraine, with the Burshtynska plant in the number one spot, followed by Turkey with six plants and four power plants belong to Serbia and Bosnia.
In addition to their greenhouse effect, one of the other problems with burning coal is it produces relatively large particles that can have mechanical detrimental effects on health. The so-called PM10 (particulate matter with a diameter of 10 micons) is a standard measure of this type of undesirable emission. If inhaled, the particles can travel into the bloodstream, harm lungs and heart, cause a stroke and lead to premature death.
In terms of PM10 emissions from coal power plants, Ukraine is almost unrivalled. In the top ten positions, Seyitömer (600 MW) and Tunçbilek (365 MW) from Turkey compete alongside plants with at least twice the capacity from Ukraine. The top 10 list for PM10 hosts even older power plants than those on the SO2 list, with the plant ages varying between 48 and 61 years.
Another dangerous gas is the nitrogen oxide family (NOx), which are gases that cause inflammation of the airways and disrupt normal cell mechanisms, damaging tissues and reducing the immune abilities of the body, the Ember Analytical Centre says.
Ukraine has nine plants in the top thirty ranking for NOx. Among the top thirty, Turkey and Germany have six plants from each, three from Poland, and two each Serbia and Kosovo. Turkey is also represented by its young imported hard coal power plants together with its notorious lignite in the top positions. ZETES III (28th) and ZETES III (32nd) were commissioned in 2016 and 2010 respectively.
Eight power plants from Ukraine exist in all of the top thirty rankings: Kurakhivska, Burshtynska, Trypilska, Luhanska, Vuhlehirska, Slovyanska, Ladyzhynska and Zaporizka. Soma B and Çayırhan from Turkey find a place in all top 30 plant-based pollution rankings, likewise Nikola Tesla A and Nikola Tesla B from Serbia.
Ukraine remains heavily dependent on coal to power the country, although in the last few years it has been working hard to switch to renewable energy sources.
The country produces 34% of its electricity consumption from 20 coal power plants built before 1976, none of which have desulphurisation equipment other than the second unit of Trypilska (300 MW of the 1,800-MW power plant) which was installed with FGD as a pilot project in the country.
The coal plants have become even more important thanks to the de facto war with Russia that has seen the country cease Russian imports of cleaner-burning natural gas for more than three years. With abundant supplies of coal in the Donbas coal basin the government has little alternative to burning coal in the short term, but under former President Petro Poroshenko Ukraine introduced extremely generous green tariffs that led to a boom in investment into renewable energy sources.
More than $5bn has been invested into thousands of projects, big and small, by domestic and international investors. The oligarch-controlled power companies, with DTEK Energy owned by Ukraine’s richest man Rinat Akhmetov leading the pack, have also invested heavily in the business, but still only control about 20% of the total green capacity.
Ukraine has enormous solar (55 GW) and wind (319 GW) power potential, which could allow for coal to be phased out by 2030. Ukraine could generate its total energy demand from solar by using less than 5% of its land.
However, the boom in renewables ran into problems as Poroshenko’s government promised more than it could afford, and the Zelenskiy administration reneged on the promises and has changed the tariffs retroactively. As bne IntelliNews reported in August 2020, the law cut tariffs by 15% for solar and 7.5% for wind.
Currently the government owes renewable power companies around $1.1bn in unpaid fees and has been talking about issuing a green bond to pay off its debt, but several of the companies are unhappy and have started arbitration actions against the government. What should have been a welcome transformation of Ukraine’s power generating profile has turned into an imbroglio that has hurt what little investor confidence there was.
Ukraine also has extensive gas resources in two sizable gas basins in the east and west of the country and currently produces about 20 bcm a year that covers just over half of its domestic needs. More could be produced, but the process of awarding exploration and production tenders has only just got going and although Ukraine could become entirely self-sufficient in natural gas, it is still many years aware from increasing production to that level.
The companies are also responding to the changes.
Ukraine’s leading utility DTEK announced a new corporate strategy on December 22 that will dramatically increase the share of green energy it produces and puts environmental, social and governance (ESG) principles at the core of its business operations, the company said in an emailed press release.
“For the first time in DTEK’s history, CEO Maxim Timchenko yesterday presented the company’s 2030 corporate strategy at its partly public annual senior management conference. DTEK has committed itself to transforming into a greener, more efficient and technologically advanced business. Implementing the strategy will contribute significantly to the decarbonisation of both the Ukrainian and European economy,” DTEK said in the press release.
Turkey was responsible for 33% of annual SO2 emissions originating from the energy sector among OECD countries in 2018, placing Turkey on the top of the list. It is likely this is due to many coal power plants in Turkey still lacking proper flue gas desulphurisation (FGD) systems. The old lignite plants commissioned without any desulphurisation continued to run until the end of 2019 without any challenge.
In Turkey it is difficult to determine which coal power plants comply with the emission standards. The Turkish government does not provide plant-level emissions data, as this is deemed to be commercially sensitive information. It is also unknown if emissions are monitored at all. From old studies by the state-owned energy company, it is known that unfiltered SO2 emission concentrations of old Turkish coal plants are between 25-60 times higher than the current limits; even the ones with desulphurisation do not comply with the new emission concentration limits. This gap between regulation and practice is reflected in total SO2 emission statistics of the country.
Turkey closed down some of its coal power plants at the beginning of 2020 due to being non-compliant with the emission limits. However, just a couple of months after this decision, these power plants received temporary permission to operate following the Ministry of Environment and Urbanisation announcement. Currently they are all operational and included in the official installed capacity statistics.
Recently in Turkey only the Çan 18 Mart lignite power plant was upgraded with a proper FGD. The 300-MW lignite power plant paid for desulphurisation.
Bosnia, Kosovo, North Macedonia and Serbia did not comply with the ceilings both in 2018 and 2019. The Secretariat launched a dispute settlement procedure in March. Ukraine, although being on the top of all polluter lists, interestingly met all emission ceilings for all three pollutants by a large margin.
Another implementation alternative under the LCPD, known as “opt-out”, provides an exemption to national NERCP ceiling calculations if plants commit to operate less than 20,000 operational hours between 2018-2023.
Serbia says it targets 40% renewables in its energy mix, but for the moment remains heavily dependent on coal and it has been building new coal capacity. Minister of Energy and Mining Zorana Mihaljovic has put increased emphasis on the energy transition since her appointment in 2020, though this is a politically sensitive issue. Major new coal power stations Kolubara 2 and Kostolac B3 have been under construction, but in May 2021 the government announced that work on Kolubara 2 has been suspended for reasons that are as yet unclear. Kostolac B3 has also run into difficulties as Mihaljović criticised both the speed and the quality of work by China Machinery Engineering Corporation.
Bosnia faces similar issues, and the Bosnian Federation is currently embroiled in a dispute with the Energy Community secretariat over alleged state aid for the construction of the Tuzla 7 coal-fired power plant. There are several projects to build coal power plants in Bosnia, at various stages of development, but it is not clear how many are economically viable.
Montenegro dropped plans for a new unit at the Pljevlja thermal power plant (TPP), opting instead to extend the life of the existing unit. Power company EPCG says it needs to continue operating Pljevlja, as shutting down the power plant will be too costly.
Kosovo planned to add a major new coal power plant, to be built by US company ContourGlobal, However, last year ContourGlobal announced its decision to cancel the 500-MW Kosova e Re coal-fired power plant project, estimated to cost €1.3bn. ContourGlobal said it planned to sue Kosovo because as a result of the political situation in the country, the power plant project was incapable of reaching its required milestones by the required project completion date in May 2020, so the project could not proceed.
Aside from Albania, which produces almost all its energy from hydropower, according to the Energy Community, North Macedonia is the only country in the Western Balkans that has expressed its intent to gradually phase out coal. "Bosnia & Herzegovina, Kosovo, Montenegro and Serbia are moving on with their plans to refurbish existing coal-fired capacities or even commission new capacities before 2030," the Energy Community said in February, adding that if these plans are realised the level of coal-fired generation capacities will expand by 1.5 GW by 2030.
Russia ratified the Paris Climate Accord on September 23, committing itself to reducing CO2 emissions to 70% of the 1990 levels. But that is an easy goal, as Russia’s CO2 emissions peaked in the last year of the Soviet Union and the following year emissions collapsed along with the Soviet economy. Russia’s commitment means it can actually increase its emissions from the current 1.8Gt of CO2 emissions per year and still meet its commitments to the accord, as bne IntelliNews reported in “The cost of carbon in Russia” in September 2019.
Thanks to the legacy of central planning it is also one of the biggest polluters in the world. With a territory that stretches half way around the globe, the Soviet government acted as if Russia’s ecology was an infinite resource. But global warming has caught up even with Russia, as the permafrost is melting that could cause as much as $1 trillion of damage to cities and infrastructure in the interior. In the last year the Kremlin has done a sharp about-face from scoffing at the problem to acting.
In April the Kremlin launched a pilot carbon pricing project on the Far East island of Sakhalin and proposed imposing fines of RUB150-2,000 ($2-25) per tonne on companies that exceed proposed new GHG emissions quotas.
Coal-fired power plants will be replaced with somewhat cleaner natural gas and hydrogen-fuelled passenger train lines developed in the region the size of Ireland, Sakhalin officials said, after their net-zero carbon by 2025 roadmap was approved by Moscow in February. About 97% of all coal mined there is currently exported, and coal could remain a reserve fuel for Sakhalin, if technologies were introduced to make the industry cleaner, according to the regional governor.
Russia has the second-largest coal reserves in the world, equalling 19% of the world's total. The total coal reserves in Russia amount to 173bn tonnes. This puts Russia behind the United States in total coal reserves, which has 263bn tonnes. Most of Russia's coal reserves are in the Kuznetsk and Kansk-Achinsk basins. Russia is the fifth-largest consumer of coal in the world and is the sixth-largest producer of coal. Over two-thirds of coal produced in Russia is used domestically.
The percentage of coal in Russian power generation has been declining since 1990, when it was 20.7%, due to rising gas consumption as well as increasing nuclear and hydroelectric energy output. Currently only 14.4% of Russia's power is produced from coal.
However, coal remains a major fuel in the power industry and in the new energy strategy to 2035 the use of coal could increase by half.
Last summer, the Russian government approved an energy strategy that would see coal output rise from 441mn tpy in 2019 to 485mn-668mn tpy by 2035.
Private and state firms are working to expand coal ports and rail transport capacity. Last year, Russia saw the launch of its biggest underground coal mine, Inaglinskiy. “There hasn’t been a construction project like this since Soviet times,” its backers said.
“Now we understand that we have a lot of coal that, very soon, no one is going to need,” he said. “If we don’t sell it in the next 10-20 years, there won’t be any point in mining it.”
Russia’s government is confident that coal use in Asia will continue to grow for some time. “Growth prospects are primarily related to the growing market of the Asia-Pacific region,” Deputy Prime Minister Alexander Novak said in a coal report last year.
However, most of the progress so far as been made by the companies, which have been putting ESG policies into place in the last year, with the focus on the environmental element only expected to become more relevant for investors.
Russia remains a big producer of coal from the coal-mining heartland of Kuzbass, most of which is using in power stations, which in turn cause just over half (53%) of Russia’s GHG emissions.
Russia has reduced emissions dramatically since the Soviet era, not because utilities’ management went green, but more because they simply invested into more efficient and profitable equipment that reduces emissions as a side-effect.
But that changed in October 2019 when the Italian-owned Enel Russia power company sold its coal-burning power station and got out of carbon completely, promising to invest the proceeds into renewable power. It was a dramatic decision, as the Reftinskaya coal-powered station accounted for a third of the company’s entire revenue but was its only exposure to GHG-emitting power generation. Investors loved it. Although the company reduced its revenues and will have to increase its debt, the company’s stock price soared as Enel became the leading green power producer in Russia at the stroke of a pen.
The rest of Russia’s energy-intense industrials have been moving more slowly, but the looming EU Green Deal has spurred them into action more recently.
Major Russian aluminium producer RusAl – the biggest single consumer of power in the country – is already switching from coal-burning power supplies to hydro in an effort to reduce its carbon footprint, reports VTBC, and is considering completely ditching its coal-fired power plants and coal mines. More recently RusAl announced that it was breaking the company into two separate pieces – the clean from the dirty – that is supposed to facilitate its reduction of GHG emissions.
But investment is still going into coal mega-projects.
A-Property plans to invest a further $1.7bn on Elga’s development and sees it as part of a far eastern industrial cluster, together with the gas producer, another coal mine and a coal-loading port on the Sea of Japan.
Mechel, a mining firm controlled by Igor Zyuzin, bought the licence to develop Elga in 2007, spending $2.3bn to acquire it as part of a regional coal complex. It invested a further $1bn on developing Elga.
Founded in 2003, Mechel spent its early years aggressively buying up metals plants and the coking coal mines that could supply them. By the time the 2008 financial crisis hit, Mechel had taken on $5bn in debt.
In 2020, Zyuzin decided to sell. Enter Elga’s unlikely new owner, Albert Avdolyan, who made his money in telecommunications. His investment firm, A-Property, bought Elga for $1.9bn.
The scale of Avdolyan’s vision is huge: Elga’s new managers have been tasked with lifting output from 4mn tonnes of coal in 2019 to a staggering 45mn tonnes by 2023.
Moreover, the coking coal that Elga produces is used primarily in the production of steel. It has no ready replacement, and so demand remains strong. According to the International Energy Agency (IEA), “substitution of steel production from iron ore at scale without coal is not expected in the near term.”
China is by far the world’s largest consumer of coal for power generation, accounting for 53% of total global coal generation in 2020, according to the think-tank Ember.
The government says that 72% of China's power came from coal in 2005, falling to 56.8% in 2020, with a target of 56% for 2021.
However, in absolute terms, Chinese coal generation acutely grew by 18% between 2015 and 2020, and by 1.7% between 2019 and 2020, the only country in the world to see growth in coal generation in 2020.
However, although this share is falling, principally to meet Beijing’s target of net zero by 2060, the country is still a major builder of new power plants
It commissioned 38.4 GW of new coal-fired power in 2020, compared with 11.9 GW turned on in the rest of the world, according to Global Energy Monitor (GEM). Meanwhile, the country currently has 247 GW of coal power capacity under development.
Indeed, President Xi Jinping recently announced at US President Joe Biden’s Virtual Climate Summit that China's carbon emissions would peak before 2030 and the country should attain carbon neutrality by 2060.
Xi said that Beijing would follow a policy of strictly controlling, while still increasing, coal use until 2026, when consumption would begin to fall.
China’s policy is to wind down its coal consumption during this slow transition to net zero. Coal would no longer be the major source of power, but would provide grid flexibility, reliability and a major source of employment.
India is even more coal-reliant than China, the fuel accounting for 71% of the country’s generation in 2020, Ember said. Then came China with 61%, slightly more that Beijing’s own figures, with Indonesia next on 60%, Australia on 54%, South Korea on 38% and Japan on 29%.
In a nutshell, Asia is perhaps the most exposed global region to coal, and is well behind such regions as the EU in pushing to reduce their reliance on it.
Finally, the other major coal economy is South Africa, where coal accounted for 86% of power supply in 2020, making it the most coal-reliant power sector in the G20. Renewables currently accounts for just 6%.
This is an inheritance from the apartheid era, when the government could invest in cheap domestic coal production in order to fuel industrial expansion. However, the country’s energy sector has failed to modernise since the end of apartheid in the early 1990s.
This has left an investment-starved and virtually bankrupt Eskom, the state-owned monopoly, running a power sector than cannot adapt to new renewable technology or even maintain reliable supplies to industrial and domestic customers.
A lack of maintenance at older coal plants has led to rolling power cuts. This has acutely affected industry in South Africa, and slowed growth and socio-economic development.
Power consumption has actually fallen by 5.4% since 2015, unique for a developing economy,
Eskom now had debts totalling ZAR450bn ($25bn), and the company’s power purchase agreements (PPAs) with a range of private mining companies have recently been the focus of legal cases highlighting corruption dating back to the presidency of Jacob Zuma.
When South African President Cyril Ramaphosa took office, he overhauled Eskom’s management and board, as well as putting in a stronger regime of oversight.
As well rooting out corruption and cutting the influence of Zuma-influenced ANC figures, Ramaphosa has spearheaded Eskom’s plans to split up the company into generation, transmission and distribution entities. This aims to cut debt, improve operational efficiency and reduce corruption.
South African has also set a 2050 net-zero target, but this will require both massive deployment of wind and solar and a major reorganisation of the national grid away from coal.
Poland reduced coal and lignite share in its energy mix from over 90% to 70% in 2020 (Ember's 2018 data say 77%), with some "help" from the pandemic-reduced recession but also thanks to falling demand for coal as renewable energy – photovoltaics (PV) in particular – takes hold.
In future, Poland's emissions from the power sector are expected to fall to 11%-28% in 2040 thanks to offshore wind, further development of onshore wind and photovoltaics, gas, as well as nuclear power.
Central and Eastern Europe (CEE) is “brimming with opportunities for investment into renewable energy, airports and infrastructure,” a study by international law firm CMS found.
This year’s report “confirms that a crucial point has been reached in the global transition into greener, smarter and more sustainable investments and assets,” a press release emailed to bne IntelliNews said.
Among the seven CEE countries included in the 2019 index, Poland has the top spot across the region for investment attractiveness, rising three points since the 2017 index.
According to the report, Poland – which still relies heavily on coal power – is making “huge strides” in the clean energy sector.
“Poland’s strong position in the index is gratifying and reflects the strength of the primary infrastructure market and the government’s support for investment in sustainable assets,” Marcin Bejm, head of infrastructure and project finance at CMS Poland, said in the report.