The last embers of a once-thriving coal industry

Tim_Sturgiss_New_Energy_SolarTim Sturgiss13 April 2018

For more than a century, coal has helped drive economic growth and development for much of the modern world1 – until now.

In the United States, findings from the Energy Information Administration (EIA) have revealed that one of the biggest contributors to the displacement of coal is natural gas.2 To satisfy the growing demand for gas in both domestic and export markets, however, production may need to expand into more expensive-to-produce areas, consequently pressuring production costs and prices.3 While gas remained the number one source of US power,4 generation declined by 7.7% over the last year.5 Further, Bloomberg New Energy Finance’s (BNEF) 2018 Sustainable Energy in America factbook found that the consumption of both coal and gas declined by 2.3% and 2.5% respectively due, in part, to the US power sector’s shift away from fossil fuels and toward renewable resources.6

In some parts of the US, continuing to maintain and operate existing coal plants is now more expensive than constructing certain renewable energy projects, such as wind.7 From 2007 to 2016, 531 coal generators representing 55.6 gigawatts (GW) of capacity were retired in the US. In 2017, this trend continued when 27 coal-fired plants with 22 GW of capacity were announced for conversion or early closure.8 It is evident that coal-powered generators face fundamental challenges to their once-dominant position in the electricity market.9 Meanwhile, the EIA also contends that favourable economics relative to generating technologies will result in a more than doubling of renewables generation between 2017 and 2050 in the US, with this generation led by growth in both wind and solar.10

Globally, the cost of renewable energies such as wind and solar have fallen steadily, enabling renewables to become increasingly cost competitive with traditional resources. BNEF’s levelised costs of electricity report (LCOE – that is, a balanced measurement used to compare the cost of energy from different resources) found that fossil fuel power faces an unprecedented challenge in the supply of bulk and dispatchable generation, as well as the provision of flexibility for the grid.11 According to BNEF, an 18% improvement in the competitiveness of onshore wind and solar, combined with battery storage innovation, poses a mounting threat to the dominant position enjoyed by coal and gas in the electricity mix.12

But while renewable energy capacity has grown exponentially in recent years, the sector does face a number of challenges. When compared to coal, which is considered a “firm power” due to its reliable transmission availability,13 renewable resources remain intermittent and are consequently deployed as part of a diversified energy mix that collectively meets the needs of consumers.14 However, as renewables continue to contribute a greater supply of the electricity mix, technology such as battery storage has been utilised to balance the intermittency of renewables and improve reliability. In the US, for example, growth in the battery storage market has surged and is set to nearly double this year.15

Despite renewables’ intermittency issues, the favourable economics of renewable energy project development is set to see the industry continue to boom.16

Lazard’s annual Levelized Cost of Energy Analysis – Version 11.0 found that the availability of wind and solar resources has still had a meaningful impact on the levelised cost of energy for various regions around the globe.17 As renewables continue becoming more cost-competitive with conventional generation, they approach an LCOE that is at or below the marginal cost of conventional technologies.18 And according to Lazard, the trend of declining LCOE values for renewable energies may therefore lead to ongoing and significant deployment of renewable energy capacity in the future.19

Tim joined New Energy Solar as a Director in June 2017, focusing on capital management, and funding of the existing portfolio and new investments. He is a corporate advisory specialist with experience in providing bespoke solutions to infrastructure and corporate clients, covering capital management, transaction execution, structured products and M&A strategy.

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