Globally there is a growing consensus to move towards less carbon intensive power generation in a bid to tackle pollution and environmental concerns. This consensus is reflected in the decline[SS1] [KM2] of coal consumption in 2019, although there are disparities between countries as they reacted differently in response to their own particular dynamics. Major Asian countries such as China and Indonesia increased their coal consumption whereas in the United States, the European Union and in India, consumption decreased.
As far as the production of coal is concerned, growth continued but at a slower rate. According to the International Energy Agency (IEA), 2019 showed a year-on-year increase, but was half the growth rate compared to 2018 and 2017.
In 2019, the total world coal production increased by 1.5%. China was the major contributor with +144 Mt production followed by Indonesia with +66 Mt production. India saw its first production decrease in this century and second in history.
When it comes to advanced economies, U.S. reduced its production by 46 Mt and the European Union reduced it by 68 Mt, half of which was reduced by Germany.
Global coal production had recovered from the 2014-2016 dip, touching 7921 Mt in 2019, near the historical maximum of 2013. Following 2016, production increased by 253 Mt each year in 2017 and 2018, 3.4% and 3.5% respectively. In 2019 the production increase was 116 Mt, showcasing a slowdown in coal extraction industry.
Figure 1: Coal production year-on-year growth rate for selected economies and years.
Source: International Energy Agency
Production by Region
Figure 2: Percentage change in coal production year on year (Mt).
China has been the world’s leading coal producer since 1985, with 3,693 Mt in 2019, constituting 46.6% of global production. The Chinese coal production is growing at a rate of approximately 4% since 2017, (it was 4.1% in 2019) with 114 Mt more than what was produced in 2018.
In 2019, coal production of India touched 769 Mt which is 0.9% less than the previous year mainly because hydro generation increased during that time. The decline in coal production in the U.S. started at the onset of century and reached 640 Mt in 2019, which is the lowest in four decades.
The European Union showed the sharpest decline ever in 2019, down by 6.8 Mt or 15.4 percent. The main contributors to this decline were Germany, Poland and Greece, with the year on year drops of -38, -10 and -9 Mt, respectively. Spain completely stopped its coal production in 2019 and several other European countries have announced their phase out plans. It is expected that this downward trend will continue and accelerate.
Coal production, in the case of Indonesia, increased by 12.4% (+68 Mt) in 2019 which is the highest since 2016. Australia also showed an increase in coal production after a gap of three years in 2019 by 3.7 % (18,000,000 tons) crossing the 500 Mt barrier which was lost in 2017.
Coal supplies more than a third of the world’s electric generation. After two consecutive years of growth, global coal consumption decreased by 1.2% or 64 mtce in 2019. This is even taking into account the increase in China and Indonesia, which together increased their consumption by 66 mtce where US & EU reduced theirs by 61 and 68 mtce, respectively.
The Paris Agreement
Under the Paris Agreement, countries that sign, agree to set goals to reduce their Greenhouse Gas (GHG) emissions with the idea that this will limit the rise in global average temperatures to 2 degrees Celsius (closer as possible to 1.5 degree Celsius) above pre-industrial levels. 197 countries have signed the agreement, and 190 have made it binding (i.e. ratified) including the world’s largest carbon emitters China (number 1) and India (number 3). The U.S. (number 2 in carbon emissions) pulled out of the agreement on Nov. 4th, 2020.
Joe Biden, won the U.S. presidency and is expected to re-enter the Paris Climate Agreement immediately. He also proposes a two trillion-dollar plan which will investment in green energy and this is expected to accelerate the divestment from coal powered electricity generation plants.
In 2020 the consumption of coal was down due to the impact of Covid-19, and the U.S. Energy Information Administration (EIA) forecasts a rise of 21% for 2021 mostly due to lower-than-average prices expected for coal and an increase in natural gas prices. As per the forecast by EIA, about 537 m short tons of coal will be used as fuel for power in 2021 a number similar to 2019. A surge in the demand for coal alongside oil would push US emissions up by 287m which is the fastest annual rise since the 1970s.
The surge in coal consumption will be short lived as companies shift to cleaner fuels and renewables especially if much in Biden’s plan is implemented. A recent survey conducted by the EIA of American utility companies showed that none had plans to construct any coal fired power plants.
Companies and their Energy Solutions
The following companies are some of the largest in constructing power plants and recently they made announcements that will change their business:
Energy technology giant Siemens Energy announced that it will no longer bid on pure coal fired power plants tenders. However, it will honor existing commitments for coal fired power plants including binding offers and continue in the business of combined heat and power projects which can be coal or gas fired. The decision of phasing out of pure coal power technology came during a decline in coal generation in Europe and U.S. following public pressure to steer away from businesses that affect climate.
Siemens Energy, after a successful spinoff from industrial conglomerate Siemens AG, started trading at the Frankfurt Stock Exchange in late September. Siemens Energy is organized into two reporting segments: Gas and Power technology and Siemens Gamesa Renewable Energy (SGRE). Gas and Power offers products for the generation of energy along the value chain in oil and gas and services those products. SGRE offers on and offshore wind turbines as well as offer services. Siemens Energy remains the largest shareholder of wind turbine maker Gamesa (owning 67%).
Gas and Power accounts for 66% of revenue (18,120 million EUR) for the fiscal year ending Sept. 30, 2020 compared to revenues of 9.48 million EUR from SGRE.
Sustainable solutions still constitute more than half of Siemens Energy’s revenue where energy giant will continue transforming its business model keeping in view question of sustainability as well. Along with highly efficient gas and steam turbines, direct current systems and cutting-edge technologies like electrolyzers for producing green hydrogen.
Based on the 2020 figures, selling turbines to coal fired power plants account for a single digit percentage of company’s total sales reaching 820 million euros rendering the business profitable. Siemens energy still holds 67% of wind turbine maker Siemens Gamesa which makes 30% of sales through fossil fuel power stations, mostly gas while competing with General Electric and Mitsubishi heavy electric.
Siemens Energy confirmed their guidance for fiscal 2021 and expects to grow 2-12% in 2021 where adjusted EBITA for special items to grow by 3-5%. Following the footsteps of Siemens, Japanese tech giant Toshiba announced that it will not participate in gold projects globally. Toshiba pledged to cut discontinue its coal fired power stations business while disclosing their new strategy on the back of quarterly earnings report.
Siemens will honor existing commitments including the extension of PT Indo Raya Tenaga’s coal power fleet in Indonesia. Siemens will also supply SST-6000 steam in turbines to already planned Java 9 and 10 plant blocks which will have a total generation capacity of two gigawatts, costing around 3 billion USD. These plants will come online in 2023 and 2024, respectively.
In response to Japan’s newly elected Prime Minister Yoshihide pledge to put the country on a path to carbon neutrality by 2050, one of Japan’s biggest companies, Toshiba supported the government by outlining its Environmental Future Vision 2050.
Toshiba will no longer accept orders of turbines and other equipment for coal fired power plants and will increase its investment in energy saving products and in the renewable sector by a factor of three in the next 10 years. This will enable a 50% reduction, compared to 2019, in GHG emissions throughout the company’s value chain by 2030, and to possibly realize net zero emissions by 2050.
Toshiba’s clean energy investment was 185 billion Yen in 2018 to 2019 and is projected to reach 350 billion Yen in 2024 to 2025 and 650 billion Yen for 2029-2030.
Toshiba will continue to manufacture steam turbines and is committed to supply its products to geothermal power stations in future. The company will also offer maintenance services for existing coal-powered plants and honor outstanding commitments to complete coal fired power stations in Japan, Vietnam and other countries.
General Electric was the first power industry giant to announce that it intends to pull out of the coal market which is subject to applicable consultation requirements. General Electric will continue to honor outstanding commitments as it pursues its exit which includes divestitures, site closings, job impacts and ‘which is subject to applicable consultation requirements’ appropriate considerations for publicly held subsidiaries. The Steam Power business will continue to service existing coal and nuclear facilities as well as deliver turbines for the nuclear sector.
The Power Portfolio will focus on power generation business with better “economics and growth trajectory”. The shift from coal announcement came the same day they announced they would supply the a wind farm with 190 turbines.
This will be followed by continuation of investments in renewable energy business where it will also continue its nuclear industry operations by continuing delivery and servicing of steam turbines of the market.
The South Korean government joined Japan in making 2050 the year to be carbon neutral and Samsung’s Power and Energy group said they would exit the coal business. They will continue to be involved in upcoming projects even if these projects are in the paper stage. Construction of the two ventures, the Gangneung facility in South Korea and the Vung Ang 2 project in Vietnam, are scheduled to be completed in 2023 and 2024, respectively.
Across the world, 22 insurance companies have either announced to end or limit the insurance of coal fired power plants in last three years. But until Samsung’s announcement, no insurance company had joined the global trend to withdraw from coal projects.
Recently one of Asia’s active insurers Samsung Fire and Marine, the property and casualty insurer of Samsung conglomerate announced to divest from coal projects. Samsung Life and Samsung Fire and Marine are the biggest coal financers in Korea plowing almost 12.6 billion USD in almost 40 coal fired stations in the last 12 years. Since August, climate change groups and activists have placed pressure on Samsung to not go ahead with the insurance of Vung Ang 2 coal power plant in Vietnam. Samsung responded to the public pressure and announced it would stop insuring coal projects although it is not confirmed whether Samsung will go ahead with the insurance of Vung Ang 2.
There may be occasional surges in coal consumption in advanced economies, but we will see continuous divestment from the sector in the long term. Even in developing countries where coal consumption has been growing, there will be a shift but a rather slow depending on the fiscal space of the country. The majority of countries have signed the Paris Climate Agreement and there will be peer pressure to use cleaner fuels.
Also, on the contrary, world runs a risk especially with some developing countries that may speed up extraction of coal keeping in view possible ban on coal in future. This rapid extraction has potential to offset the decline in the coal consumption in advanced economies rendering the ban useless.
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