Changes to the Chinese economy coupled with a shift towards renewable energy could send global coal consumption into a terminal decline within 10 years
The latest long-term forecast from Bloomberg New Energy Finance (BNEF), entitled ‘New Energy Outlook 2016’, charts a significantly lower track for global coal prices due to a projected supply glut, new regulations and China’s economic slowdown.
The forecast adds that coal generation will slowdown in Europe, and peak in 2020 in the US and in 2025 in China before beginning its terminal decline.
According to the report, an overabundance of supply will cut the cost of generating power through coal. As such, the London-based researchers have reduced its long-term forecast for coal prices by 33%. Seaborne coal in particular appears to be in structural decline, it says.
“Coal prices have been falling since their last peak in 2011, and a combination of China’s economic slowdown coupled with developed country emission regulations, carbon prices and India’s plan to develop its domestic resources leads us to conclude that coal prices will remain low.”
“Changes in the Chinese economy, and a move to renewables, mean that coal-fired generation there in 10 years’ time will be 1,000 TWh, or 21% below the figure predicted by BNEF in last year’s New Energy Outlook.”
BNEF has also reduced its long-term forecast for coal generation in China. While in the next five years it sees China adding almost 190 GW of coal plants, BNEF says that a moratorium on new coal plants in the country post-2020 as it deals with air pollution problems and its near term slowdown in electricity demand growth will leave India, South East Asia and the Middle East adding the majority of new capacity thereafter.
“Changes in the Chinese economy, and a move to renewables, mean that coal-fired generation there in 10 years’ time will be 1,000 TWh,” it adds. This is 21% below the figure predicted by BNEF in last year’s New Energy Outlook. China will also see 66 GW less coal installed leading up to 2040 than it anticipated last year.
One country that will continue to depend on coal, however, is India. According to BNEF, the country will rely heavily on the commodity to satisfy its electricity demand, which is expected to increase fourfold by 2040.
“The country will need to invest in a variety of energy sources to meet this overwhelming new demand,” it says. “India has hundreds of millions of people with little or no access to electricity, and the country sits atop a mountain of coal. It intends to use it.”
India’s reliance on coal power stations coupled with low coal prices could result in 258 GW of new capacity and a trebling of its annual coal consumption by 2040, adds BNEF.
Coal is also on pace to replace gas as Japan’s leading power source within the next three years as power utilities replace ageing nuclear capacity with the fossil fuel.
Despite this though, the report reiterates that coal generation will remain almost flat leading up to 2040. Again, the combination of pollution regulations, carbon prices and a lack of electricity demand growth will drive the net closure of 286 GW of coal in Organisation for Economic Co-operation and Development (OECD) economies, it says.
What’s more, while investment in coal generation will continue, predominately in emerging economies, with some $1.2tr expected to be invested into new coal burning capacity, renewables will take the lion’s share of investment.
Up to $7.8tr will be invested in green power over the same period of time, reports BNEF, representing a significant shift towards clean energy.
Jon Moore, head of BNEF, says: “The New Energy Outlook incorporates a significantly lower trajectory for coal and gas prices than the 2015 edition did a year ago but, strikingly, still shows rapid transition towards clean power over the next 25 years.”
Elena Giannakopoulou, senior energy economist on the New Energy Outlook 2016 project, adds: “The outlook for coal is crucial for international ambitions on climate. The Paris conference last December saw 196 nations agree to limit global warming to well below two degrees centigrade and to aim to reach global peaking of emissions as soon as possible.”